ASSOCIATED INSURANCE & SURETY COMPANY v. IYA [G.R. Nos.

L-10837-38. May 30, 1958.]

!!
1. IMMOVABLE PROPERTY; BUILDINGS; IMMOVABLE STATUS OF

BUILDING UNAFFECTED BY CHANGE OF OWNERSHIP OF LAND.

A building is an immovable property irrespective of whether or not
said structure and the land on which it is adhered to belong to the
same owner (Lopez v. Orosa, supra, p. 98). It cannot be divested of its
character of a realty by the fact that the land on which it is constructed
belongs to another. If the status of the building were to depend on the
ownership of the land, a situation would be created where a permanent
fixture changes its nature or character as the ownership of the land
changes hands.

!2. CHATTEL MORTGAGE; SUBJECT OF; EFFECT WHERE THE

INTEREST CONVEYED IS IMMOVABLE. As personal properties

could only be the subject of a chattel mortgage, the execution of a
chattel mortgage on a building is invalid and a nullity, the registration of
the chattel notwithstanding. The registration of the chattel in the
Chattel Mortgage Registry produced no effect whatsoever for where
the interest conveyed is in

!the nature of a real property, the registration of the document in the

registry of chattels is merely a futile act. Thus the registration of the

chattel mortgage of a building of strong materials produce no effect as
far as the building is concerned (Leung Yee v. Strong Machinery Co.,
37 Phil. 644).

!3. ID.; ID.; RIGHT ACQUIRED BY PURCHASER AT AN EXTRA-

JUDICIAL FORECLOSURE SALE. A mortgage creditor who

purchases real properties at an extra-judicial foreclosure sale thereof
by virtue of a chattel mortgage constituted in his favor, which mortgage
has been declared null and void with respect to said real properties,
acquires no right thereto by virtue of said sale (De la Riva v. Ah Kee,
60 Phil. 899).

!!
!

CISION
!Adriano Valino and Lucia DA.E Valino,
husband and wife, were the

owners and possessors of a house of strong materials constructed on

Lot No. 3, Block No. 80 of the Grace Park Subdivision in Caloocan,
Rizal, which they purchased on installment basis from the Philippine
Realty Corporation. On November 6, 1951, to enable her to purchase
on credit rice from the NARIC, Lucia A. Valino filed a bond in the sum
of P11,000.00 (AISCO Bond No. 971) subscribed by the Associated
Insurance & Surety Co., Inc., and as counter-guaranty therefor, the
spouses Valino executed an alleged chattel mortgage on the
aforementioned house in favor of the surety company, which
encumbrance was duly registered with the Chattel Mortgage Register
of Rizal on December 6, 1951. It is admitted that at the time said
undertaking took place, the parcel of land on which the house is
erected was still registered in the name of the Philippine Realty
Corporation. Having completed payment on the purchase price of the
lot, the Valinos were able to secure on October 18, 1958, a certificate
of title in their name (T.C.T. No. 27884). Subsequently, however, or on
October 24, 1952, the Valinos, to secure payment of an indebtedness
in the amount of P12,000.00, executed a real estate mortgage over the
lot and the house in favor of Isabel Iya, which was duly registered and
annotated at the back of the certificate of title.

!On the other hand, as Lucia A. Valino, failed to satisfy her obligation to

the NARIC, the surety company was compelled to pay the same
pursuant to the undertaking of the bond. In turn, the surety company
demanded reimbursement from the spouses Valino, and as the latter
likewise failed to do so, the company foreclosed the chattel mortgage
over the house. As a result thereof, a public sale was conducted by the
Provincial Sheriff of Rizal on December 26, 1952, wherein the property
was awarded to the surety company for P8,000.00, the highest bid
received therefor. The surety company then caused the said house to
be declared in its name for tax purposes (Tax Declaration No. 25128).

!Sometime in July, 1953, the surety company learned of the existence

of the real estate mortgage over the lot covered by T.C.T. No. 26884
together with the improvements thereon; thus, said surety company
instituted Civil Case No. 2162 of the Court of First Instance of Manila
naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as

defendants. The complaint prayed for the exclusion of the residential

house from the real estate mortgage in favor of defendant Iya and the
declaration and recognition of plaintiffs right to ownership over the
same in virtue of the award given by the Provincial Sheriff of Rizal
during the public auction held on December 26, 1952. Plaintiff likewise
asked the Court to sentence the spouses Valino to pay said surety
moral and exemplary damages, attorneys fees and costs. Defendant
Isabel Iya filed her answer to the complaint alleging among other
things, that in virtue of the real estate mortgage executed by her codefendants, she acquired a real right over the lot and the house
constructed thereon; that the auction sale allegedly conducted by the
Provincial Sheriff of Rizal as a result of the foreclosure of the chattel
mortgage on the house was null and void for non-compliance with the
form required by law. She, therefore, prayed for the dismissal of the
complaint and annulment of the sale made by the Provincial Sheriff.
She also demanded the amount of P5,000.00 from plaintiff as
counterclaim, the sum of P5,000.00 from her co-defendants as
crossclaim, for attorneys fees and costs.

!Defendants spouses in their answer admitted some of the averments

of the complaint and denied the others. They, however, prayed for the
dismissal of the action for lack of cause of action, it being alleged that
plaintiff was already the owner of the house in question, and as said
defendants admitted this fact, the claim of the former was already
satisfied.

!On October 29,1953, Isabel Iya filed another civil action against the

Valinos and the surety company (Civil Case No. 2504 of the Court of
First Instance of Manila) stating that pursuant to the contract of
mortgage executed by the spouses Valino on October 24, 1952, the
latter undertook to pay a loan of P12,000.00 with interest at 12% per
annum or P120.00 a month, which indebtedness was payable in 4
years, extendible for only one year; that to secure payment thereof,
said defendants mortgaged the house and lot covered by T.C.T. No.
27884 located at No. 67 Baltazar St., Grace Park Subdivision,
Caloocan, Rizal; that the Associated Insurance & Surety Co., Inc., was
included as a party defendant because it claimed to have an interest
on the residential house also covered by said mortgage; that it was
stipulated in the aforesaid real estate mortgage that default in the
payment of the interest agreed upon would entitle the mortgagee to

foreclose the same even before the lapse of the 4-year period; and as
defendant spouses had allegedly failed to pay the interest for more
than 6 months, plaintiff prayed the Court to order said defendants to
pay the sum of P12,000.00 with interest thereon at 12% per annum
from March 25, 1953, until fully paid; for an additional sum equivalent
to 20% of the total obligation as damages, and for costs. As an
alternative in case such demand may not be met and satisfied plaintiff
prayed for a decree of foreclosure of the land, building and other
improvements thereon to be sold at public auction and the proceeds
thereof, applied to satisfy the demands of plaintiff; that the Valinos, the
surety company and any other person claiming interest on the
mortgaged properties be barred and foreclosed of all rights, claims or
equity of redemption in said properties; and for deficiency judgment in
case the proceeds of the sale of the mortgaged property would be
insufficient to satisfy the claim of plaintiff.

!Defendant surety company, in answer to this complaint insisted on its

right over the building, arguing that as the lot on which the house was
constructed did not belong to the spouses at the time the chattel
mortgage was executed, the house might be considered only as a
personal property and that the encumbrance thereof and the
subsequent foreclosure proceedings made pursuant to the provisions
of the Chattel Mortgage Law were proper and legal. Defendant
therefore prayed that said building be excluded from the real estate
mortgage and its right over the same be declared superior to that of
plaintiff, for damages, attorneys fees and costs.

!Taking side with the surety company, defendant spouses admitted the

due execution of the mortgage upon the land but assailed the
allegation that the building was included thereon, it being contended
that it was already encumbered in favor of the surety company before
the real estate mortgage was executed, a fact made known to plaintiff
during the preparation of said contract and to which the latter offered
no objection. As a special defense, it was asserted that the action was
premature because the contract was for a period of 4 years, which had
not yet elapsed.

!The two cases were jointly heard upon agreement of the parties, who
submitted the same on a stipulation of facts, after which the Court
rendered judgment dated March 8, 1956, holding that the chattel

mortgage in favor of the Associated Insurance & Surety Co., Inc., was
preferred and superior over the real estate mortgage subsequently
executed in favor of Isabel Iya. It was ruled that as the Valinos were
not yet the registered owner of the land on which the building in
question was constructed at the time the first encumbrance was made,
the building then was still a personalty and a chattel mortgage over the
same was proper. However, as the mortgagors were already the
owners of the lot at the time the contract with Isabel Iya was entered
into, the building was transformed into a real property and the real
estate mortgage created thereon was likewise adjudged as proper. It is
to be noted in this connection that there is no evidence on record to
sustain the allegation of the spouses Valino that at the time they
mortgaged their house and lot to Isabel Iya, the latter was told or knew
that part of the mortgaged property, i.e., the house, had previously
been mortgaged to the surety company.

!The residential building was, therefore, ordered excluded from the

foreclosure prayed for by Isabel Iya, although the latter could exercise
the right of a junior encumbrancer. So the spouses Valino were
ordered to pay the amount demanded by said mortgagee or in their
default to have the parcel of land subject of the mortgage sold at public
auction for the satisfaction of Iyas claim.

!There is no question as to appellants right over the land covered by

the real estate mortgage; however, as the building constructed thereon

has been the subject of 2 mortgages; controversy arise as to which of
these encumbrances should receive preference over the other. The
decisive factor in resolving the issue presented by this appeal is the
determination of the nature of the structure litigated upon, for where it
be considered a personalty, the foreclosure of the chattel mortgage
and the subsequent sale thereof at public auction, made in accordance
with the Chattel Mortgage Law would be valid and the right acquired by
the surety company therefrom would certainly deserve prior
recognition; otherwise, appellants claim for preference must be
granted. The lower Court, deciding in favor of the surety company,
based its ruling on the premise that as the mortgagors were not the
owners of the land on which the building is erected at the time the first
encumbrance was made, said structure partook of the nature of a
personal property and could properly be the subject of a chattel

mortgage. We find reason to hold otherwise, for as this Court, defining

the nature or character of a building, has said:jgc:chanrobles.com.ph

!". . . while it is true that generally, real estate connotes the land and the

building constructed thereon, it is obvious that the inclusion of the

building, separate and distinct from the land, in the enumeration of
what may constitute real properties (Art. 415, new Civil Code) could
only mean one thing that a building is by itself an immovable
property . . . Moreover, and in view of the absence of any specific
provision to the contrary, a building is an immovable property
irrespective of whether or not said structure and the land on which it is
adhered to belong to the same owner." (Lopez v. Orosa, G. R. Nos.
supra, p. 98).

!A building certainly cannot be divested of its character of a realty by

the fact that the land on which it is constructed belongs to another. To

hold it the other way, the possibility is not remote that it would result in
confusion, for to cloak the building with an uncertain status made
dependent on the ownership of the land, would create a situation
where a permanent fixture changes its nature or character as the
ownership of the land changes hands. In the case at bar, as personal
properties could only be the subject of a chattel mortgage (Section 1,
Act 3952) and as obviously the structure in question is not one, the
execution of the chattel mortgage covering said building is clearly
invalid and a nullity. While it is true that said document was
correspondingly registered in the Chattel Mortgage Register of Rizal,
this act produced no effect whatsoever for where the interest conveyed
is in the nature of a real property, the registration of the document in
the registry of chattels is merely a futile act. Thus, the registration of
the chattel mortgage of a building of strong materials produce no effect
as far as the building is concerned (Leung Yee v. Strong Machinery
Co., 37 Phil., 644). Nor can we give any consideration to the
contention of the surety that it has acquired ownership over the
property in question by reason of the sale conducted by the Provincial
Sheriff of Rizal, for as this Court has aptly
pronounced:jgc:chanrobles.com.ph

!"A mortgage creditor who purchases real properties at an extrajudicial

foreclosure sale thereof by virtue of a chattel mortgage constituted in

his favor, which mortgage has been declared null and void with respect

to said real properties, acquires no right thereto by virtue of said

sale" (De la Riva v. Ah Keo, 60 Phil., 899).

!Wherefore, the portion of the decision of the lower Court in these two

cases appealed from holding the rights of the surety company over the
building superior to that of Isabel Iya and excluding the building from
the foreclosure prayed for by the latter is reversed and appellant Isabel
Iyas right to foreclose not only the land but also the building erected
thereon is hereby recognized, and the proceeds of the sale thereof at
public auction (if the land has not yet been sold), shall be applied to
the unsatisfied judgment in favor of Isabel Iya. This decision however
is without prejudice to any right that the Associated Insurance & Surety
Co., Inc., may have against the spouses Adriano and Lucia Valino on
account of the mortgage of said building they executed in favor of said
surety company. Without pronouncement as to costs. It is so ordered.

!!
LEUNG YEE v. FRANK L. STRONG MACHINERY COMPANY [G.R.
No. L-11658 February 15, 1918]

CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable quantity of
rice-cleaning machinery company from the defendant machinery
company, and executed a chattel mortgage thereon to secure payment
of the purchase price. It included in the mortgage deed the building of
strong materials in which the machinery was installed, without any
reference to the land on which it stood. The indebtedness secured by
this instrument not having been paid when it fell due, the mortgaged
property was sold by the sheriff, in pursuance of the terms of the
mortgage instrument, and was bought in by the machinery company.
The mortgage was registered in the chattel mortgage registry, and the
sale of the property to the machinery company in satisfaction of the
mortgage was annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the
"Compaia Agricola Filipina" executed a deed of sale of the land upon
which the building stood to the machinery company, but this deed of
sale, although executed in a public document, was not registered. This

deed makes no reference to the building erected on the land and

would appear to have been executed for the purpose of curing any
defects which might be found to exist in the machinery company's title
to the building under the sheriff's certificate of sale. The machinery
company went into possession of the building at or about the time
when this sale took place, that is to say, the month of December, 1913,
and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor
of the machinery company, the mortgagor, the "Compaia Agricola
Filipina" executed another mortgage to the plaintiff upon the building,
separate and apart from the land on which it stood, to secure payment
of the balance of its indebtedness to the plaintiff under a contract for
the construction of the building. Upon the failure of the mortgagor to
pay the amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied execution upon the
building, bought it in at the sheriff's sale on or about the 18th of
December, 1914, and had the sheriff's certificate of the sale duly
registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the
defendant machinery company, which was in possession, filed with the
sheriff a sworn statement setting up its claim of title and demanding the
release of the property from the levy. Thereafter, upon demand of the
sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in
the sum of P12,000, in reliance upon which the sheriff sold the
property at public auction to the plaintiff, who was the highest bidder at
the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the
building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code,
gave judgment in favor of the machinery company, on the ground that
the company had its title to the building registered prior to the date of
registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:

If the same thing should have been sold to different vendees, the
ownership shall be transfer to the person who may have the first taken
possession thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who
first recorded it in the registry.
Should there be no entry, the property shall belong to the person who
first took possession of it in good faith, and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property,
and it must be apparent that the annotation or inscription of a deed of
sale of real property in a chattel mortgage registry cannot be given the
legal effect of an inscription in the registry of real property. By its
express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose
and object of the chattel mortgage registry is to provide for the registry
of "Chattel mortgages," that is to say, mortgages of personal property
executed in the manner and form prescribed in the statute. The
building of strong materials in which the rice-cleaning machinery was
installed by the "Compaia Agricola Filipina" was real property, and the
mere fact that the parties seem to have dealt with it separate and apart
from the land on which it stood in no wise changed its character as real
property. It follows that neither the original registry in the chattel
mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had
any effect whatever so far as the building was concerned.
We conclude that the ruling in favor of the machinery company cannot
be sustained on the ground assigned by the trial judge. We are of
opinion, however, that the judgment must be sustained on the ground
that the agreed statement of facts in the court below discloses that
neither the purchase of the building by the plaintiff nor his inscription of
the sheriff's certificate of sale in his favor was made in good faith, and
that the machinery company must be held to be the owner of the
property under the third paragraph of the above cited article of the
code, it appearing that the company first took possession of the
property; and further, that the building and the land were sold to the

machinery company long prior to the date of the sheriff's sale to the
plaintiff.
It has been suggested that since the provisions of article 1473 of the
Civil Code require "good faith," in express terms, in relation to
"possession" and "title," but contain no express requirement as to
"good faith" in relation to the "inscription" of the property on the
registry, it must be presumed that good faith is not an essential
requisite of registration in order that it may have the effect
contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the
preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and
collusion. The public records cannot be converted into instruments of
fraud and oppression by one who secures an inscription therein in bad
faith. The force and effect given by law to an inscription in a public
record presupposes the good faith of him who enters such inscription;
and rights created by statute, which are predicated upon an inscription
in a public registry, do not and cannot accrue under an inscription "in
bad faith," to the benefit of the person who thus makes the inscription.
Construing the second paragraph of this article of the code, the
supreme court of Spain held in its sentencia of the 13th of May, 1908,
that:
This rule is always to be understood on the basis of the good faith
mentioned in the first paragraph; therefore, it having been found that
the second purchasers who record their purchase had knowledge of
the previous sale, the question is to be decided in accordance with the
following paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides that the title of
conveyance of ownership of the real property that is first recorded in
the registry shall have preference, this provision must always be
understood on the basis of the good faith mentioned in the first
paragraph; the legislator could not have wished to strike it out and to
sanction bad faith, just to comply with a mere formality which, in given

cases, does not obtain even in real disputes between third persons.
(Note 2, art. 1473, Civ. Code, issued by the publishers of the La
Revista de los Tribunales, 13th edition.)

not stand the test of an action in a court of law; and if later

developments had confirmed his unfounded hopes, no one could
question the legality of the propriety of the course he adopted.

The agreed statement of facts clearly discloses that the plaintiff, when
he bought the building at the sheriff's sale and inscribed his title in the
land registry, was duly notified that the machinery company had bought
the building from plaintiff's judgment debtor; that it had gone into
possession long prior to the sheriff's sale; and that it was in possession
at the time when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the
machinery company had filed its sworn claim of ownership, leaves no
room for doubt in this regard. Having bought in the building at the
sheriff's sale with full knowledge that at the time of the levy and sale
the building had already been sold to the machinery company by the
judgment debtor, the plaintiff cannot be said to have been a purchaser
in good faith; and of course, the subsequent inscription of the sheriff's
certificate of title must be held to have been tainted with the same
defect.

But it appearing that he had full knowledge of the machinery

company's claim of ownership when he executed the indemnity bond
and bought in the property at the sheriff's sale, and it appearing further
that the machinery company's claim of ownership was well founded, he
cannot be said to have been an innocent purchaser for value. He took
the risk and must stand by the consequences; and it is in this sense
that we find that he was not a purchaser in good faith.

Perhaps we should make it clear that in holding that the inscription of

the sheriff's certificate of sale to the plaintiff was not made in good
faith, we should not be understood as questioning, in any way, the
good faith and genuineness of the plaintiff's claim against the
"Compaia Agricola Filipina." The truth is that both the plaintiff and the
defendant company appear to have had just and righteous claims
against their common debtor. No criticism can properly be made of the
exercise of the utmost diligence by the plaintiff in asserting and
exercising his right to recover the amount of his claim from the estate
of the common debtor. We are strongly inclined to believe that in
procuring the levy of execution upon the factory building and in buying
it at the sheriff's sale, he considered that he was doing no more than
he had a right to do under all the circumstances, and it is highly
possible and even probable that he thought at that time that he would
be able to maintain his position in a contest with the machinery
company. There was no collusion on his part with the common debtor,
and no thought of the perpetration of a fraud upon the rights of
another, in the ordinary sense of the word. He may have hoped, and
doubtless he did hope, that the title of the machinery company would

One who purchases real estate with knowledge of a defect or lack of

title in his vendor cannot claim that he has acquired title thereto in
good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge
of facts which should have put him upon such inquiry and investigation
as might be necessary to acquaint him with the defects in the title of
his vendor. A purchaser cannot close his eyes to facts which should put
a reasonable man upon his guard, and then claim that he acted in
good faith under the belief that there was no defect in the title of the
vendor. His mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value, if
afterwards develops that the title was in fact defective, and it appears
that he had such notice of the defects as would have led to its
discovery had he acted with that measure of precaution which may
reasonably be acquired of a prudent man in a like situation. Good faith,
or lack of it, is in its analysis a question of intention; but in ascertaining
the intention by which one is actuated on a given occasion, we are
necessarily controlled by the evidence as to the conduct and outward
acts by which alone the inward motive may, with safety, be determined.
So it is that "the honesty of intention," "the honest lawful intent," which
constitutes good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and so it is that
proof of such knowledge overcomes the presumption of good faith in
which the courts always indulge in the absence of proof to the contrary.
"Good faith, or the want of it, is not a visible, tangible fact that can be
seen or touched, but rather a state or condition of mind which can only

be judged of by actual or fancied tokens or signs." (Wilder vs. Gilman,

55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La. Ann.,
2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part
of the decision and judgment entered in the court below should be
affirmed with costs of this instance against the appellant. So ordered.

!!
SERGS PRODUCTS v. PCI LEASING [G.R. No. 137705. August 22,
2000.]
!
DECISION
PANGANIBAN, J.:
!!

After agreeing to a contract stipulating that a real or immovable

property be considered as personal or movable, a party is estopped
from subsequently claiming otherwise. Hence, such property is a
proper subject of a writ of replevin obtained by the other contracting
party.chanrob1es virtua1 1aw 1ibrary

!
The Case
!Before us is a Petition for Review
on Certiorari assailing the January 6,

Order, praying that the deputy sheriff be enjoined "from seizing

immobilized or other real properties in [petitioners] factory in Cainta,
Rizal and to return to their original place whatever immobilized
machineries or equipments he may have removed." 9

!
The Facts
!The undisputed facts are summarized
by the Court of Appeals as
follows: 10
!"On February 13, 1998, respondent PCI Leasing and Finance, Inc.

("PCI Leasing" for short) filed worth the RTC-QC a complaint for [a]
sum of money (Annex E), with an application for a writ of replevin
docketed as Civil Case No. Q-98-33500.

!"On March 6, 1998, upon an ex-parte application of PCI Leasing,

respondent judge issued a writ of replevin (Annex B) directing its
sheriff to seize and deliver the machineries and equipment to PCI
Leasing after 5 days and upon the payment of the necessary
expenses.

!"On

March 24, 1998, in implementation of said writ, the sheriff

proceeded to petitioners factory, seized one machinery with [the] word
that he [would] return for the other machineries.

!"On March 25, 1998, petitioners filed a motion for special protective

1999 Decision 1 of the Court of Appeals (CA) 2 in CA-GR SP No.

47332 and its February 26, 1999 Resolution 3 denying
reconsideration. The decretal portion of the CA Decision reads as
follows:chanrob1es virtua1 1aw 1ibrary

order (Annex C), invoking the power of the court to control the
conduct of its officers and amend and control its processes, praying for
a directive for the sheriff to defer enforcement of the writ of replevin.

premises considered, the assailed Order dated

February 18, 1998 and Resolution dated March 31, 1998 in Civil Case
No. Q-98-33500 are hereby AFFIRMED. The writ of preliminary
injunction issued on June 15, 1998 is hereby LIFTED." 4

that the properties [were] still personal and therefore still subject to
seizure and a writ of replevin.

!"WHEREFORE,

!In its February 18, 1998 Order, 5 the Regional Trial Court (RTC) of

Quezon City (Branch 218) 6 issued a Writ of Seizure. 7 The, March 18,
1998 Resolution 8 denied petitioners Motion for Special Protective

!"This motion was opposed by PCI Leasing (Annex F), on the ground

!"In their Reply, petitioners asserted that the properties sought to be

seized [were] immovable as defined in Article 415 of the Civil Code, the
parties agreement to the contrary notwithstanding. They argued that to
give effect to the agreement would be prejudicial to innocent third
parties. They further stated that PCI Leasing [was] estopped from
treating these machineries as personal because the contracts in which

the alleged agreement [were] embodied [were] totally sham and

farcical.

!"On April 6, 1998, the sheriff again sought to enforce the writ of seizure
and take possession of the remaining properties. He was able to take
two more, but was prevented by the workers from taking the rest.

!"On April 7, 1998, they went to [the CA] via an original action for
certiorari."cralaw virtua1aw library
!
of the Court of Appeals
!Citing the AgreementRuling
of the parties, the appellate court held that the

subject machines were personal property, and that they had only been
leased, not owned, by petitioners. It also ruled that the "words of the
contract are clear and leave no doubt upon the true intention of the
contracting parties." Observing that Petitioner Goquiolay was an
experienced businessman who was "not unfamiliar with the ways of
the trade," it ruled that he "should have realized the import of the
document he signed." The CA further held:jgc:chanrobles.com.ph

!"Furthermore, to accord merit to this petition would be to preempt the

trial court in ruling upon the case below, since the merits of the whole
matter are laid down before us via a petition whose sole purpose is to
inquire upon the existence of a grave abuse of discretion on the part of
the [RTC] in issuing the assailed Order and Resolution. The issues
raised herein are proper subjects of a full-blown trial, necessitating
presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a
matter . . . which respondent court is in the best position to
determine."cralaw virtua1aw library

!Hence, this Petition. 11

!
The Issues
!In their Memorandum, petitioners
submit the following issues for our
consideration:jgc:chanrobles.com.ph
!

"A. Whether or not the machineries purchased and imported by

SERGS became real property by virtue of immobilization.

!B. Whether or not the contract between the parties is a loan or a

lease." 12
!In the main, the Court will resolve whether the said machines are
personal, not immovable, property which may be a proper subject of a
writ of replevin. As a preliminary matter, the Court will also address
briefly the procedural points raised by Respondent.

!
The Courts Ruling
!The Petition is not meritorious.
!Preliminary Matter:chanrob1es virtual 1aw library
!Procedural Questions
!Respondent contends that the Petition failed to indicate expressly

whether it was being filed under Rule 45 or Rule 65 of the Rules of

Court. It further alleges that the Petition erroneously impleaded Judge
Hilario Laqui as Respondent.

!There is no question that the present recourse is under Rule 45. This

conclusion finds support in the very title of the Petition, which is

"Petition for Review on Certiorari." 13

!While Judge Laqui should not have been impleaded as a respondent,

14 substantial justice requires that such lapse by itself should not
warrant the dismissal of the present Petition. In this light, the Court
deems it proper to remove, motu proprio, the name of Judge Laqui
from the caption of the present case.

!Main Issue:chanrob1es virtual 1aw library

!Nature of the Subject Machinery
!Petitioners contend that the subject machines used in their factory

were not proper subjects of the Writ issued by the RTC because they

were in fact real property. Serious policy considerations, they argue,

militate against a contrary characterization.

Be that as it may, we disagree with the submission of the petitioners

that the said machines are not proper subjects of the Writ of Seizure.

for the recovery of personal property only. 15 Section 3 thereof

reads:jgc:chanrobles.com.ph

real property be considered as personal. 18 After agreeing to such

stipulation, they are consequently estopped from claiming otherwise.
Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.

!Rule 60 of the Rules of Court provides that writs of replevin are issued

!"SECTION 3. Order. Upon the filing of such affidavit and approval of

the bonds the court shall issue an order and the corresponding writ of
replevin describing the personal property alleged to be wrongfully
detained and requiring the sheriff forthwith to take such property into
his custody."cralaw virtua1aw library

!On the other hand, Article 415 of the Civil Code enumerates
immovable or real property as follows:chanrob1es virtua1 1aw 1ibrary
!ARTICLE 415. The following are immovable property:chanrob1es
virtua1 1aw 1ibrary
!
x
x
x
!!
(5) Machinery, receptacles, instruments or implements intended by the

owner of the tenement for an industry or works which may be carried

on in a building or on a piece of land, and which tend directly to meet
the needs of the said industry or works.

!x x x"
!In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own
land. Indisputably, they were essential and principal elements of their
chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become
"immobilized by destination because they are essential and principal
elements in the industry." 16 In that sense, petitioners are correct in
arguing that the said machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code. 17

!The Court has held that contracting parties may validly stipulate that a

!Hence, in Trinidad v. Vicencio, 19 the Court upheld the intention of the

parties to treat a house as a personal property because it had been

made the subject of a chattel mortgage. The Court
ruled:jgc:chanrobles.com.ph

!". . . Although there is no specific statement referring to the subject

house as personal property, yet by ceding, selling or transferring a

property by way of chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at least, intended to
treat the same as such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise."cralaw virtua1aw
library

!Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.

Wearever Textile Mills 20 also held that the machinery used in a
factory and essential to the industry, as in the present case, was a
proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Courts ruling are
reproduced hereunder:jgc:chanrobles.com.ph

!". . . if a house of strong materials, like what was involved in the above

Tumalad case, may be considered as personal property for purposes

of executing a chattel mortgage thereon as long as the parties to the
contract so agree and no innocent third party will be prejudiced
thereby, there is absolutely no reason why a machinery, which is
movable in its nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really because
one who has so agreed is estopped from denying the existence of the
chattel mortgage."cralaw virtua1aw library

In the present case, the Lease Agreement clearly provides that the
machines in question are to be considered as personal property.
Specifically, Section 12.1 of the Agreement reads as follows: 21

!"12.1 The PROPERTY is, and shall at all times be and remain,

personal property notwithstanding that the PROPERTY or any part

thereof may now be, or hereafter become, in any manner affixed or
attached to or embedded in, or permanently resting upon, real property
or any building thereon, or attached in any manner to what is
permanent."cralaw virtua1aw library

!Clearly

then, petitioners are estopped from denying the

characterization of the subject machines as personal property. Under
the circumstances, they are proper subjects of the Writ of Seizure.

!It should be stressed, however, that our holding that the machines

should be deemed personal property pursuant to the Lease Agreement

is good only insofar as the contracting parties are concerned. 22
Hence, while the parties are bound by the Agreement, third persons
acting in good faith are not affected by its stipulation characterizing the
subject machinery as personal. 23 In any event, there is no showing
that any specific third party would be adversely affected.

!Validity of the Lease Agreement

!In their Memorandum, petitioners contend that the Agreement is a loan

and not a lease. 24 Submitting documents supposedly showing that

they own the subject machines, petitioners also argue in their Petition
that the Agreement suffers from "intrinsic ambiguity which places in
serious doubt the intention of the parties and the validity of the leak
agreement itself." 25 In their Reply to respondents Comment, they
further allege that the Agreement is invalid. 26

!These arguments are unconvincing. The validity and the nature of the

contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of
the merits of the case. Hence, they should be threshed out in the trial,
not in the proceedings involving the issuance of the Writ of Seizure.

Indeed, in La Tondea Distillers v. CA, 27 the Court explained that the

policy under Rule 60 was that questions involving title to the subject
property questions which petitioners are now raising should be
determined in the trial. In that case, the Court noted that the remedy of
defendants under Rule 60 was either to post a counter-bond or to
question the sufficiency of the plaintiffs bond. They were not allowed,
however, to invoke the title to the subject property. The Court
ruled:jgc:chanrobles.com.ph

!"In other words, the law does not allow the defendant to file a motion to

dissolve or discharge the writ of seizure (or delivery) on ground of

insufficiency of the complaint or of the grounds relied upon therefor, as
in proceedings on preliminary attachment or injunction, and thereby put
at issue the matter of the title or right of possession over the specific
chattel being replevied, the policy apparently being that said matter
should be ventilated and determined only at the trial on the merits." 28

!Besides, these questions require a determination of facts and a

presentation of evidence, both of which have no place in a petition for

certiorari in the CA under Rule 65 or in a petition for review in this
Court under Rule 45. 29

!Reliance on the
!Lease Agreement
!It should be pointed out that the Court in this case may rely on the

Lease Agreement, for nothing on record shows that it has been

nullified or annulled. In fact, petitioners assailed it first only in the RTC
proceedings, which had ironically been instituted by Respondent.
Accordingly, it must be presumed valid and binding as the law between
the parties.

!Makati Leasing and Finance Corporation 30 is also instructive on this

point In that case, the Deed of Chattel Mortgage, which characterized
the subject machinery as personal property, was also assailed
because respondent had allegedly been required "to sign a printed
form of chattel mortgage which was in a blank form at the time of
signing." The Court rejected the argument and relied on the Deed,
ruling as follows:chanrob1es virtua1 1aw 1ibrary

!". . . Moreover, even granting that the charge is true, such fact alone

does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article 1390
of the new Civil Code, by a proper action in court. There is nothing on
record to show that the mortgage has been annulled. Neither is it
disclosed that steps were taken to nullify the same. . ."cralaw
virtua1aw library

!Alleged Injustice Committed on the Part of Petitioners

!Petitioners contend that "if the Court allows these machineries to be

seized, then its workers would be out of work and thrown into the
streets." 31 There also allege that the seizure would nullify all efforts to
rehabilitate the corporation.

!Petitioners arguments do not preclude the implementation of the Writ.

As earlier discussed, law and jurisprudence support its propriety. Verily,

the above-mentioned consequences, if they come true, should not be
blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows the
filing of a counter-bond. The provision states:jgc:chanrobles.com.ph

!"SECTION 5. Return of property. if the adverse party objects to the

sufficiency of the applicants bond, or of the surety or sureties thereon,

he cannot immediately require the return of the property, but if he does
not so object, he may, at any time before the delivery of the property to
the applicant, require the return thereof, by filing with the court where
the action is pending a bond executed to the applicant, in double the
value of the property as stated in the applicants affidavit for the
delivery thereof to the applicant, if such delivery be adjudged, and for
the payment of such sum to him as may be recovered against the
adverse party, and by serving a copy bond on the applicant."cralaw
virtua1aw library

!WHEREFORE, the Petition is DENIED and the assailed Decision of

the Court of Appeals AFFIRMED. Costs against petitioners.
!SO ORDERED.
!

TSAI v. CA [G.R. No. 120098, October 2, 2001]

x---------------------------------------------------------x
[G.R. No. 120109. October 2, 2001.]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO
R VILLALUZ, respondents.
QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of Appeals
in CA-G.R. CV No. 32986, affirming the decision2 of the Regional Trial
Court of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is
respondent court's resolution denying petitioners' motion for
reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX)
obtained a three million peso (P3,000,000.00) loan from petitioner
Philippine Bank of Communications (PBCom). As security for the loan,
EVERTEX executed in favor of PBCom, a deed of Real and Chattel
Mortgage over the lot under TCT No. 372097, where its factory stands,
and the chattels located therein as enumerated in a schedule attached
to the mortgage contract. The pertinent portions of the Real and
Chattel Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx

xxx

xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of

First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land,

together with all the buildings and improvements now existing or which
may hereafter exist thereon, situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of
PBCommunications continued)
LIST OF MACHINERIES & EQUIPMENT
A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made
in Hongkong:
Serial Numbers Size of Machines
xxx

xxx

xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx

xxx

xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx

xxx

xxx

D. Four (4) Winding Machines.

xxx

xxx

xxx
SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx

xxx

xxx

II. Any and all buildings and improvements now existing or hereafter to
exist on the above-mentioned lot.

III. MACHINERIES & EQUIPMENT situated, located and/or installed

on the above-mentioned lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .
(c) Two (2) Circular Knitting Machines . . .
(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions, additions, increases and
accretions to above properties.
xxx

xxx

xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to

EVERTEX. The loan was secured by a Chattel Mortgage over personal
properties enumerated in a list attached thereto. These listed
properties were similar to those listed in Annex A of the first mortgage
deed.
After April 23, 1979, the date of the execution of the second mortgage
mentioned above, EVERTEX purchased various machines and
equipments.
On November 19, 1982, due to business reverses, EVERTEX filed
insolvency proceedings docketed as SP Proc. No. LP-3091-P before
the defunct Court of First Instance of Pasay City, Branch XXVIII. The
CFI issued an order on November 24, 1982 declaring the corporation
insolvent. All its assets were taken into the custody of the Insolvency
Court, including the collateral, real and personal, securing the two
mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to
PBCom, the latter commenced extrajudicial foreclosure proceedings

against EVERTEX under Act 3135, otherwise known as "An Act to

Regulate the Sale of Property under Special Powers Inserted in or
Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel
Mortgage Law". A Notice of Sheriff's Sale was issued on December 1,
1982.
On December 15, 1982, the first public auction was held where
petitioner PBCom emerged as the highest bidder and a Certificate of
Sale was issued in its favor on the same date. On December 23, 1982,
another public auction was held and again, PBCom was the highest
bidder. The sheriff issued a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and
all the properties in it. In November 1986, it leased the entire factory
premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3,
1988, PBCom sold the factory, lock, stock and barrel to Tsai for
P9,000,000.00, including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale,
reconveyance, and damages with the Regional Trial Court against
PBCom, alleging inter alia that the extrajudicial foreclosure of subject
mortgage was in violation of the Insolvency Law. EVERTEX claimed
that no rights having been transmitted to PBCom over the assets of
insolvent EVERTEX, therefore Tsai acquired no rights over such
assets sold to her, and should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual
basis, appropriated the contested properties, which were not included
in the Real and Chattel Mortgage of November 26, 1975 nor in the
Chattel Mortgage of April 23, 1979, and neither were those properties
included in the Notice of Sheriff's Sale dated December 1, 1982 and
Certificate of Sale . . . dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14
Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer
Equipment, 1 Raisin Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties
were irregular and illegal because they were not duly foreclosed nor

sold at the December 15, 1982 auction sale since these were not
included in the schedules attached to the mortgage contracts. The trial
court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
corporation and against the defendants:
1. Ordering the annulment of the sale executed by defendant
Philippine Bank of Communications in favor of defendant Ruby L. Tsai
on May 3, 1988 insofar as it affects the personal properties listed in
par. 9 of the complaint, and their return to the plaintiff corporation
through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the
Insolvency Court, to be done within ten (10) days from finality of this
decision;
2. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P5,200,000.00 as compensation for the use
and possession of the properties in question from November 1986 to
February 1991 and P100,000.00 every month thereafter, with interest
thereon at the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P50,000.00 as and for attorney's fees and
expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals,
which issued its decision dated August 31, 1994, the dispositive
portion of which reads:

WHEREFORE, except for the deletion therefrom of the award; for

exemplary damages, and reduction of the actual damages, from
P100,000.00 to P20,000.00 per month, from November 1986 until
subject personal properties are restored to appellees, the judgment
appealed from is hereby AFFIRMED, in all other respects. No
pronouncement as to costs.5

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES,
ATTORNEY'S FEES AND EXPENSES OF LITIGATION FOR WANT
OF VALID FACTUAL AND LEGAL BASIS.

Motion for reconsideration of the above decision having been denied in

the resolution of April 28, 1995, PBCom and Tsai filed their separate
petitions for review with this Court.

THE HONORABLE COURT OF APPEALS (SECOND DIVISION)

ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS ON
PRESCRIPTION AND LACHES.6

In G.R No. 120098, petitioner Tsai ascribed the following errors to the
respondent court:

In G.R. No. 120098, PBCom raised the following issues:

I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY
TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS
INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975
DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF
CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES
ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE
DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND
APPLICABLE RULINGS OF THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION)
ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH.
IV

I.
DID THE COURT OF APPEALS VALIDLY DECREE THE
MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE
COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE
1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM
FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED
BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT
ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF
THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE
THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND
HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY
MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE
ASSESSED FOR REAL ESTATE TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN
QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO
EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED
P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND
SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY
ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY
COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR

IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION

TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the
questioned properties in the foreclosed properties is proper. The
secondary issue is whether or not the sale of these properties to
petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a
contract for the parties by treating the 1981 acquired units of
machinery as chattels instead of real properties within their earlier
1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel
Mortgage.8 Additionally, Tsai argues that respondent court erred in
holding that the disputed 1981 machineries are not real properties.9
Finally, she contends that the Court of Appeals erred in holding against
petitioner's arguments on prescription and laches10 and in assessing
petitioner actual damages, attorney's fees and expenses of litigation,
for want of valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming
the lower court's judgment decreeing that the pieces of machinery in
dispute were not duly foreclosed and could not be legally leased nor
sold to Ruby Tsai. It further argued that the Court of Appeals'
pronouncement that the pieces of machinery in question were personal
properties have no factual and legal basis. Finally, it asserts that the
Court of Appeals erred in assessing damages and attorney's fees
against PBCom.
In opposition, private respondents argue that the controverted units of
machinery are not "real properties" but chattels, and, therefore, they
were not part of the foreclosed real properties, rendering the lease and
the subsequent sale thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we
find the petitions devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a
petition for review on certiorari under Rule 45 of the Revised Rules of
Court is limited to reviewing only errors of law, not of fact, unless the

factual findings complained of are devoid of support by the evidence

on record or the assailed judgment is based on misapprehension of
facts.13 This rule is applied more stringently when the findings of fact of
the RTC is affirmed by the Court of Appeals.14
The following are the facts as found by the RTC and affirmed by the
Court of Appeals that are decisive of the issues: (1) the "controverted
machineries" are not covered by, or included in, either of the two
mortgages, the Real Estate and Chattel Mortgage, and the pure
Chattel Mortgage; (2) the said machineries were not included in the list
of properties appended to the Notice of Sale, and neither were they
included in the Sheriff's Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e.,
that they were heavy, bolted or cemented on the real property
mortgaged by EVERTEX to PBCom, make them ipso facto immovable
under Article 415 (3) and (5) of the New Civil Code. This assertion,
however, does not settle the issue. Mere nuts and bolts do not
foreclose the controversy. We have to look at the parties' intent.
While it is true that the controverted properties appear to be immobile,
a perusal of the contract of Real and Chattel Mortgage executed by the
parties herein gives us a contrary indication. In the case at bar, both
the trial and the appellate courts reached the same finding that the true
intention of PBCOM and the owner, EVERTEX, is to treat machinery
and equipment as chattels. The pertinent portion of respondent
appellate court's ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries
as chattels; never as real properties. Indeed, the 1975 mortgage
contract, which was actually real and chattel mortgage, militates
against appellants' posture. It should be noted that the printed form
used by appellant bank was mainly for real estate mortgages. But
reflective of the true intention of appellant PBCOM and appellee
EVERTEX was the typing in capital letters, immediately following the
printed caption of mortgage, of the phrase "real and chattel." So also,
the "machineries and equipment" in the printed form of the bank had to
be inserted in the blank space of the printed contract and connected
with the word "building" by typewritten slash marks. Now, then, if the

machineries in question were contemplated to be included in the real

estate mortgage, there would have been no necessity to ink a chattel
mortgage specifically mentioning as part III of Schedule A a listing of
the machineries covered thereby. It would have sufficed to list them as
immovables in the Deed of Real Estate Mortgage of the land and
building involved.

by the parties to involve chattels, insofar as equipment and machinery

were concerned, the Chattel Mortgage Law applies, which provides in
Section 7 thereof that: "a chattel mortgage shall be deemed to cover
only the property described therein and not like or substituted property
thereafter acquired by the mortgagor and placed in the same
depository as the property originally mortgaged, anything in the
mortgage to the contrary notwithstanding."

As regards the 1979 contract, the intention of the parties is clear and
beyond question. It refers solely to chattels. The inventory list of the
mortgaged properties is an itemization of sixty-three (63) individually
described machineries while the schedule listed only machines and
2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.

And, since the disputed machineries were acquired in 1981 and could
not have been involved in the 1975 or 1979 chattel mortgages, it was
consequently an error on the part of the Sheriff to include subject
machineries with the properties enumerated in said chattel mortgages.

In the absence of any showing that this conclusion is baseless,

erroneous or uncorroborated by the evidence on record, we find no
compelling reason to depart therefrom.

As the auction sale of the subject properties to PBCom is void, no valid

title passed in its favor. Consequently, the sale thereof to Tsai is also a
nullity under the elementary principle of nemo dat quod non habet, one
cannot give what one does not have.17

16

Too, assuming arguendo that the properties in question are immovable

by nature, nothing detracts the parties from treating it as chattels to
secure an obligation under the principle of estoppel. As far back as
Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be
considered a personal property if there is a stipulation as when it is
used as security in the payment of an obligation where a chattel
mortgage is executed over it, as in the case at bar.
In the instant case, the parties herein: (1) executed a contract styled as
"Real Estate Mortgage and Chattel Mortgage," instead of just "Real
Estate Mortgage" if indeed their intention is to treat all properties
included therein as immovable, and (2) attached to the said contract a
separate "LIST OF MACHINERIES & EQUIPMENT". These facts,
taken together, evince the conclusion that the parties' intention is to
treat these units of machinery as chattels. A fortiori, the contested
after-acquired properties, which are of the same description as the
units enumerated under the title "LIST OF MACHINERIES &
EQUIPMENT," must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate
court's ruling that inasmuch as the subject mortgages were intended

Petitioner Tsai also argued that assuming that PBCom's title over the
contested properties is a nullity, she is nevertheless a purchaser in
good faith and for value who now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of
the trial court that she is not a purchaser in good faith. Well-settled is
the rule that the person who asserts the status of a purchaser in good
faith and for value has the burden of proving such assertion.18
Petitioner Tsai failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a right to
or interest in such property and pays a full and fair price for the same,
at the time of purchase, or before he has notice of the claims or
interest of some other person in the property.19 Records reveal,
however, that when Tsai purchased the controverted properties, she
knew of respondent's claim thereon. As borne out by the records, she
received the letter of respondent's counsel, apprising her of
respondent's claim, dated February 27, 1987.20 She replied thereto on
March 9, 1987.21 Despite her knowledge of respondent's claim, she
proceeded to buy the contested units of machinery on May 3, 1988.

Thus, the RTC did not err in finding that she was not a purchaser in
good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot
where the disputed properties are located is equally unavailing. This
defense refers to sale of lands and not to sale of properties situated
therein. Likewise, the mere fact that the lot where the factory and the
disputed properties stand is in PBCom's name does not automatically
make PBCom the owner of everything found therein, especially in view
of EVERTEX's letter to Tsai enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than
convincing. We find no cogent reason to disturb the consistent findings
of both courts below that the case for the reconveyance of the disputed
properties was filed within the reglementary period. Here, in our view,
the doctrine of laches does not apply. Note that upon petitioners'
adamant refusal to heed EVERTEX's claim, respondent company
immediately filed an action to recover possession and ownership of the
disputed properties. There is no evidence showing any failure or
neglect on its part, for an unreasonable and unexplained length of
time, to do that which, by exercising due diligence, could or should
have been done earlier. The doctrine of stale demands would apply
only where by reason of the lapse of time, it would be inequitable to
allow a party to enforce his legal rights. Moreover, except for very
strong reasons, this Court is not disposed to apply the doctrine of
laches to prejudice or defeat the rights of an owner.22
As to the award of damages, the contested damages are the actual
compensation, representing rentals for the contested units of
machinery, the exemplary damages, and attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00
corresponding to the unpaid rentals of the contested properties based
on the testimony of John Chua, who testified that the P100,000.00 was
based on the accepted practice in banking and finance, business and
investments that the rental price must take into account the cost of
money used to buy them. The Court of Appeals did not give full
credence to Chua's projection and reduced the award to P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss
must not only be capable of proof but must actually be proven with
reasonable degree of certainty, premised upon competent proof or best
evidence obtainable of the actual amount thereof.23 However, the
allegations of respondent company as to the amount of unrealized
rentals due them as actual damages remain mere assertions
unsupported by documents and other competent evidence. In
determining actual damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on
competent proof and on the best evidence obtainable regarding the
actual amount of loss.24 However, we are not prepared to disregard the
following dispositions of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on
record warranting the said award of P5,200,000.00, representing
monthly rental income of P100,000.00 from November 1986 to
February 1991, and the additional award of P100,000.00 per month
thereafter.
As pointed out by appellants, the testimonial evidence, consisting of
the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what
is necessary to substantiate the actual damages allegedly sustained
by appellees, by way of unrealized rental income of subject
machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection
based on what is claimed to be a practice in business and industry. But
such a testimony cannot serve as the sole basis for assessing the
actual damages complained of. What is more, there is no showing that
had appellant Tsai not taken possession of the machineries and
equipments in question, somebody was willing and ready to rent the
same for P100,000.00 a month.
xxx

xxx

xxx

Then, too, even assuming arguendo that the said machineries and
equipments could have generated a rental income of P30,000.00 a
month, as projected by witness Mamerto Villaluz, the same would have
been a gross income. Therefrom should be deducted or removed,

expenses for maintenance and repairs . . . Therefore, in the

determination of the actual damages or unrealized rental income sued
upon, there is a good basis to calculate that at least four months in a
year, the machineries in dispute would have been idle due to absence
of a lessee or while being repaired. In the light of the foregoing
rationalization and computation, We believe that a net unrealized rental
income of P20,000.00 a month, since November 1986, is more realistic
and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to
EVERTEX which the Court of Appeals deleted. But according to the
CA, there was no clear showing that petitioners acted malevolently,
wantonly and oppressively. The evidence, however, shows otherwise.It
is a requisite to award exemplary damages that the wrongful act must
be accompanied by bad faith,26 and the guilty acted in a wanton,
fraudulent, oppressive, reckless or malevolent manner.27 As previously
stressed, petitioner Tsai's act of purchasing the controverted properties
despite her knowledge of EVERTEX's claim was oppressive and
subjected the already insolvent respondent to gross disadvantage.
Petitioner PBCom also received the same letters of Atty. Villaluz,
responding thereto on March 24, 1987.28 Thus, PBCom's act of taking
all the properties found in the factory of the financially handicapped
respondent, including those properties not covered by or included in
the mortgages, is equally oppressive and tainted with bad faith. Thus,
we are in agreement with the RTC that an award of exemplary
damages is proper.
The amount of P200,000.00 for exemplary damages is, however,
excessive. Article 2216 of the Civil Code provides that no proof of
pecuniary loss is necessary for the adjudication of exemplary
damages, their assessment being left to the discretion of the court in
accordance with the circumstances of each case.29 While the
imposition of exemplary damages is justified in this case, equity calls
for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No.
L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the rule
that judicial discretion granted to the courts in the assessment of
damages must always be exercised with balanced restraint and
measured objectivity. Thus, here the award of exemplary damages by
way of example for the public good should be reduced to P100,000.00.

By the same token, attorney's fees and other expenses of litigation

may be recovered when exemplary damages are awarded.30 In our
view, RTC's award of P50,000.00 as attorney's fees and expenses of
litigation is reasonable, given the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and
resolution of the Court of Appeals in CA-G.R. CV No. 32986 are
AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of
Communications and Ruby L. Tsai are hereby ordered to pay jointly
and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per
month, as compensation for the use and possession of the properties
in question from November 198631 until subject personal properties are
restored to respondent corporation; (2) P100,000.00 by way of
exemplary damages, and (3) P50,000.00 as attorney's fees and
litigation expenses. Costs against petitioners. SO ORDERED.

!
MINDANAO BUS COMPANY v. CITY ASSESSOR [G.R. No. L-17870,
September 29, 1962]
Binamira, Barria and Irabagon for petitioner.
Vicente E. Sabellina for respondents.
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax
Appeals in C.T.A. Case No. 710 holding that the petitioner Mindanao
Bus Company is liable to the payment of the realty tax on its
maintenance and repair equipment hereunder referred to.
Respondent City Assessor of Cagayan de Oro City assessed at
P4,400 petitioner's above-mentioned equipment. Petitioner appealed
the assessment to the respondent Board of Tax Appeals on the ground
that the same are not realty. The Board of Tax Appeals of the City
sustained the city assessor, so petitioner herein filed with the Court of
Tax Appeals a petition for the review of the assessment.

In the Court of Tax Appeals the parties submitted the following

stipulation of facts:

(g) D-Engine Waukesha-M-Fuel, appearing in the attached

photograph, marked Annex "G".

Petitioner and respondents, thru their respective counsels agreed to

the following stipulation of facts:

4. That these machineries are sitting on cement or wooden platforms

as may be seen in the attached photographs which form part of this
agreed stipulation of facts;

1. That petitioner is a public utility solely engaged in transporting

passengers and cargoes by motor trucks, over its authorized lines in
the Island of Mindanao, collecting rates approved by the Public Service
Commission;
2. That petitioner has its main office and shop at Cagayan de Oro City.
It maintains Branch Offices and/or stations at Iligan City, Lanao;
Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon
Province;
3. That the machineries sought to be assessed by the respondent as
real properties are the following:
(a) Hobart Electric Welder Machine, appearing in the attached
photograph, marked Annex "A";
(b) Storm Boring Machine, appearing in the attached photograph,
marked Annex "B";
(c) Lathe machine with motor, appearing in the attached photograph,
marked Annex "C";
(d) Black and Decker Grinder, appearing in the attached photograph,
marked Annex "D";
(e) PEMCO Hydraulic Press, appearing in the attached photograph,
marked Annex "E";
(f) Battery charger (Tungar charge machine) appearing in the attached
photograph, marked Annex "F"; and

5. That petitioner is the owner of the land where it maintains and

operates a garage for its TPU motor trucks; a repair shop; blacksmith
and carpentry shops, and with these machineries which are placed
therein, its TPU trucks are made; body constructed; and same are
repaired in a condition to be serviceable in the TPU land transportation
business it operates;
6. That these machineries have never been or were never used as
industrial equipments to produce finished products for sale, nor to
repair machineries, parts and the like offered to the general public
indiscriminately for business or commercial purposes for which
petitioner has never engaged in, to date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city
assessor's ruling, and having denied a motion for reconsideration,
petitioner brought the case to this Court assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents'
contention that the questioned assessments are valid; and that said
tools, equipments or machineries are immovable taxable real
properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415
of the New Civil Code, and holding that pursuant thereto the movable
equipments are taxable realties, by reason of their being intended or
destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention
that the respondent City Assessor's power to assess and levy real
estate taxes on machineries is further restricted by section 31,
paragraph (c) of Republic Act No. 521; and

4. The Tax Court erred in denying petitioner's motion for

reconsideration.

installed for carrying on the sugar industry for which it has been
established must necessarily be permanent. (Emphasis ours.)

Respondents contend that said equipments, tho movable, are

immobilized by destination, in accordance with paragraph 5 of Article
415 of the New Civil Code which provides:

So that movable equipments to be immobilized in contemplation of the

law must first be "essential and principal elements" of an industry or
works without which such industry or works would be "unable to
function or carry on the industrial purpose for which it was
established." We may here distinguish, therefore, those movable which
become immobilized by destination because they are essential and
principal elements in the industry for those which may not be so
considered immobilized because they are merely incidental, not
essential and principal. Thus, cash registers, typewriters, etc., usually
found and used in hotels, restaurants, theaters, etc. are merely
incidentals and are not and should not be considered immobilized by
destination, for these businesses can continue or carry on their
functions without these equity comments. Airline companies use
forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are
incidentals, not essentials, and thus retain their movable nature. On
the other hand, machineries of breweries used in the manufacture of
liquor and soft drinks, though movable in nature, are immobilized
because they are essential to said industries; but the delivery trucks
and adding machines which they usually own and use and are found
within their industrial compounds are merely incidental and retain their
movable nature.

Art. 415. The following are immovable properties:

xxx

xxx

xxx

(5) Machinery, receptacles, instruments or implements intended by the

owner of the tenement for an industry or works which may be carried
on in a building or on a piece of land, and which tend directly to meet
the needs of the said industry or works. (Emphasis ours.)
Note that the stipulation expressly states that the equipment are
placed on wooden or cement platforms. They can be moved around
and about in petitioner's repair shop. In the case of B. H. Berkenkotter
vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:
Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the
character of real property to "machinery, liquid containers, instruments
or implements intended by the owner of any building or land for use in
connection with any industry or trade being carried on therein and
which are expressly adapted to meet the requirements of such trade or
industry."
If the installation of the machinery and equipment in question in the
central of the Mabalacat Sugar Co., Inc., in lieu of the other of less
capacity existing therein, for its sugar and industry, converted them into
real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as
essential and principle elements of a sugar central, without them the
sugar central would be unable to function or carry on the industrial
purpose for which it was established. Inasmuch as the central is
permanent in character, the necessary machinery and equipment

Similarly, the tools and equipments in question in this instant case are,
by their nature, not essential and principle municipal elements of
petitioner's business of transporting passengers and cargoes by motor
trucks. They are merely incidentals acquired as movables and used
only for expediency to facilitate and/or improve its service. Even
without such tools and equipments, its business may be carried on, as
petitioner has carried on, without such equipments, before the war. The
transportation business could be carried on without the repair or
service shop if its rolling equipment is repaired or serviced in another
shop belonging to another.
The law that governs the determination of the question at issue is as
follows:

Art. 415. The following are immovable property:

xxx

xxx

xxx

(5) Machinery, receptacles, instruments or implements intended by the

owner of the tenement for an industry or works which may be carried
on in a building or on a piece of land, and which tend directly to meet
the needs of the said industry or works; (Civil Code of the Phil.)
Aside from the element of essentiality the above-quoted provision also
requires that the industry or works be carried on in a building or on a
piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra,
the "machinery, liquid containers, and instruments or implements" are
found in a building constructed on the land. A sawmill would also be
installed in a building on land more or less permanently, and the
sawing is conducted in the land or building.
But in the case at bar the equipments in question are destined only to
repair or service the transportation business, which is not carried on in
a building or permanently on a piece of land, as demanded by the law.
Said equipments may not, therefore, be deemed real property.
Resuming what we have set forth above, we hold that the equipments
in question are not absolutely essential to the petitioner's
transportation business, and petitioner's business is not carried on in a
building, tenement or on a specified land, so said equipment may not
be considered real estate within the meaning of Article 415 (c) of the
Civil Code.
WHEREFORE, the decision subject of the petition for review is hereby
set aside and the equipment in question declared not subject to
assessment as real estate for the purposes of the real estate tax.
Without costs.
So ordered.

SIBAL v. VALDEZ [G.R. No. L-26278, August 4, 1927]

J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J.:
The action was commenced in the Court of First Instance of the
Province of Tarlac on the 14th day of December 1924. The facts are
about as conflicting as it is possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant
Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue of
a writ of execution issued by the Court of First Instance of Pampanga,
attached and sold to the defendant Emiliano J. Valdez the sugar cane
planted by the plaintiff and his tenants on seven parcels of land
described in the complaint in the third paragraph of the first cause of
action; that within one year from the date of the attachment and sale
the plaintiff offered to redeem said sugar cane and tendered to the
defendant Valdez the amount sufficient to cover the price paid by the
latter, the interest thereon and any assessments or taxes which he
may have paid thereon after the purchase, and the interest
corresponding thereto and that Valdez refused to accept the money
and to return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant
Emiliano J. Valdez was attempting to harvest the palay planted in four
of the seven parcels mentioned in the first cause of action; that he had
harvested and taken possession of the palay in one of said seven
parcels and in another parcel described in the second cause of action,
amounting to 300 cavans; and that all of said palay belonged to the
plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against
the defendant Emiliano J. Valdez his attorneys and agents, restraining
them (1) from distributing him in the possession of the parcels of land
described in the complaint; (2) from taking possession of, or harvesting
the sugar cane in question; and (3) from taking possession, or
harvesting the palay in said parcels of land. Plaintiff also prayed that a

judgment be rendered in his favor and against the defendants ordering

them to consent to the redemption of the sugar cane in question, and
that the defendant Valdez be condemned to pay to the plaintiff the sum
of P1,056 the value of palay harvested by him in the two parcels
above-mentioned ,with interest and costs.

the Honorable Cayetano Lukban, judge, rendered a judgment against

the plaintiff and in favor of the defendants

On December 27, 1924, the court, after hearing both parties and upon
approval of the bond for P6,000 filed by the plaintiff, issued the writ of
preliminary injunction prayed for in the complaint.

(2) Absolving the defendants from all liability under the complaint; and

The defendant Emiliano J. Valdez, in his amended answer, denied

generally and specifically each and every allegation of the complaint
and step up the following defenses:
(a) That the sugar cane in question had the nature of personal property
and was not, therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first
cause of action of the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that
by reason of the preliminary injunction he was unable to gather the
sugar cane, sugar-cane shoots (puntas de cana dulce) palay in said
parcels of land, representing a loss to him of P8,375.20 and that, in
addition thereto, he suffered damages amounting to P3,458.56. He
prayed, for a judgment (1) absolving him from all liability under the
complaint; (2) declaring him to be the absolute owner of the sugar
cane in question and of the palay in parcels 1, 2 and 7; and (3)
ordering the plaintiff to pay to him the sum of P11,833.76, representing
the value of the sugar cane and palay in question, including damages.
Upon the issues thus presented by the pleadings the cause was
brought on for trial. After hearing the evidence, and on April 28, 1926,

(1) Holding that the sugar cane in question was personal property and,
as such, was not subject to redemption;

(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal to jointly and severally pay to the
defendant Emiliano J. Valdez the sum of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by plaintiff;
(d) 600.00, the value of 150 cavans of palay which the defendant was
not able to raise by reason of the injunction, at P4 cavan. 9,439.08
From that judgment the plaintiff appealed and in his assignments of
error contends that the lower court erred: (1) In holding that the sugar
cane in question was personal property and, therefore, not subject to
redemption;
(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez,
as well as parcels 7 and 8, and that the palay therein was planted by
Valdez;
(3) In holding that Valdez, by reason of the preliminary injunction failed
to realized P6,757.40 from the sugar cane and P1,435.68 from sugarcane shoots (puntas de cana dulce);
(4) In holding that, for failure of plaintiff to gather the sugar cane on
time, the defendant was unable to raise palay on the land, which would
have netted him the sum of P600; and.

(5) In condemning the plaintiff and his sureties to pay to the defendant
the sum of P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac,
by virtue of writ of execution in civil case No. 20203 of the Court of
First Instance of Manila (Macondray & Co., Inc. vs. Leon Sibal),levied
an attachment on eight parcels of land belonging to said Leon Sibal,
situated in the Province of Tarlac, designated in the second of
attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).
(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight
parcels of land, at the auction held by the sheriff of the Province of
Tarlac, for the sum to P4,273.93, having paid for the said parcels
separately as follows (Exhibit C, and 2-A):

!Parcel

1 .....................................................................
2 .....................................................................
3 .....................................................................
4 .....................................................................
5 .....................................................................
6 .....................................................................
7 with the house thereon ..........................
8 .....................................................................

(3) That within one year from the sale of said parcel of land, and on the
24th day of September, 1923, the judgment debtor, Leon Sibal, paid
P2,000 to Macondray & Co., Inc., for the account of the redemption
price of said parcels of land, without specifying the particular parcels to
which said amount was to applied. The redemption price said eight
parcels was reduced, by virtue of said transaction, to P2,579.97
including interest (Exhibit C and 2).
The record further shows:
(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy
sheriff of the Province of Tarlac, by virtue of a writ of execution in civil
case No. 1301 of the Province of Pampanga (Emiliano J. Valdez vs.
Leon Sibal 1. the same parties in the present case), attached the
personal property of said Leon Sibal located in Tarlac, among which
was included the sugar cane now in question in the seven parcels of
land described in the complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff sold at public
auction said personal properties of Leon Sibal, including the sugar
cane in question to Emilio J. Valdez, who paid therefor the sum of
P1,550, of which P600 was for the sugar cane (Exhibit A).

P1.00
2,000.00
120.93
1,000.00
1.00
1.00
150.00

!
1,000.00
==========
4,273.93

(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of
execution, also attached the real property of said Leon Sibal in Tarlac,
including all of his rights, interest and participation therein, which real
property consisted of eleven parcels of land and a house and camarin
situated in one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels, including the
house and the camarin, were bought by Emilio J. Valdez at the auction
held by the sheriff for the sum of P12,200. Said eight parcels were
designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and
11. The house and camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the certificate of the
sheriff as parcels 2, 12, and 13, were released from the attachment by
virtue of claims presented by Agustin Cuyugan and Domiciano Tizon
(Exhibit A).

(6) That on the same date, June 25, 1924, Macondray & Co. sold and
conveyed to Emilio J. Valdez for P2,579.97 all of its rights and interest
in the eight parcels of land acquired by it at public auction held by the
deputy sheriff of Tarlac in connection with civil case No. 20203 of the
Court of First Instance of Manila, as stated above. Said amount
represented the unpaid balance of the redemption price of said eight
parcels, after payment by Leon Sibal of P2,000 on September 24,
1923, fro the account of the redemption price, as stated above. (Exhibit
C and 2).

however, has received in recent years an interpretation by the Tribunal

Supremo de Espaa, which holds that, under certain conditions,
growing crops may be considered as personal property. (Decision of
March 18, 1904, vol. 97, Civil Jurisprudence of Spain.)

The foregoing statement of facts shows:

No creemos, sin embargo, que esto excluya la excepcionque muchos

autores hacen tocante a la venta de toda cosecha o de parte de ella
cuando aun no esta cogida (cosa frecuente con la uvay y la naranja), y
a la de lenas, considerando ambas como muebles. El Tribunal
Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un
contrato de arrendamiento de un predio rustico, resuelve que su
terminacion por desahucio no extingue los derechos del arrendario,
para recolectar o percibir los frutos correspondientes al ao agricola,
dentro del que nacieron aquellos derechos, cuando el arrendor ha
percibido a su vez el importe de la renta integra correspondiente, aun
cuando lo haya sido por precepto legal durante el curso del juicio,
fundandose para ello, no solo en que de otra suerte se daria al
desahucio un alcance que no tiene, sino en que, y esto es lo
interesante a nuestro proposito, la consideracion de inmuebles que el
articulo 334 del Codigo Civil atribuge a los frutos pendientes, no les
priva del caracter de productos pertenecientes, como tales, a quienes
a ellos tenga derecho, Ilegado el momento de su recoleccion.

(1) The Emilio J. Valdez bought the sugar cane in question, located in
the seven parcels of land described in the first cause of action of the
complaint at public auction on May 9 and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the owner of eight
parcels of land situated in the Province of Tarlac belonging to Leon
Sibal and that on September 24, 1923, Leon Sibal paid to Macondray
& Co. P2,000 for the account of the redemption price of said parcels.
(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray
& Co. all of its rights and interest in the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the
rights and interest which Leon Sibal had or might have had on said
eight parcels by virtue of the P2,000 paid by the latter to Macondray.
(5) That Emilio J. Valdez became the absolute owner of said eight
parcels of land.
The first question raised by the appeal is, whether the sugar cane in
question is personal or real property. It is contended that sugar cane
comes under the classification of real property as "ungathered
products" in paragraph 2 of article 334 of the Civil Code. Said
paragraph 2 of article 334 enumerates as real property the following:
Trees, plants, and ungathered products, while they are annexed to the
land or form an integral part of any immovable property." That article,

Manresa, the eminent commentator of the Spanish Civil Code, in

discussing section 334 of the Civil Code, in view of the recent
decisions of the supreme Court of Spain, admits that growing crops are
sometimes considered and treated as personal property. He says:

xxx

xxx

xxx

Mas actualmente y por virtud de la nueva edicion de la Ley

Hipotecaria, publicada en 16 de diciembre de 1909, con las reformas
introducidas por la de 21 de abril anterior, la hipoteca, salvo pacto
expreso que disponga lo contrario, y cualquiera que sea la naturaleza
y forma de la obligacion que garantice, no comprende los frutos
cualquiera que sea la situacion en que se encuentre. (3 Manresa, 5.
edicion, pags. 22, 23.)

From the foregoing it appears (1) that, under Spanish authorities,

pending fruits and ungathered products may be sold and transferred
as personal property; (2) that the Supreme Court of Spain, in a case of
ejectment of a lessee of an agricultural land, held that the lessee was
entitled to gather the products corresponding to the agricultural year,
because said fruits did not go with the land but belonged separately to
the lessee; and (3) that under the Spanish Mortgage Law of 1909, as
amended, the mortgage of a piece of land does not include the fruits
and products existing thereon, unless the contract expressly provides
otherwise.
An examination of the decisions of the Supreme Court of Louisiana
may give us some light on the question which we are discussing.
Article 465 of the Civil Code of Louisiana, which corresponds to
paragraph 2 of article 334 of our Civil Code, provides: "Standing crops
and the fruits of trees not gathered, and trees before they are cut
down, are likewise immovable, and are considered as part of the land
to which they are attached."
The Supreme Court of Louisiana having occasion to interpret that
provision, held that in some cases "standing crops" may be considered
and dealt with as personal property. In the case of Lumber Co. vs.
Sheriff and Tax Collector (106 La., 418) the Supreme Court said:
"True, by article 465 of the Civil Code it is provided that 'standing crops
and the fruits of trees not gathered and trees before they are cut
down . . . are considered as part of the land to which they are
attached, but the immovability provided for is only one in abstracto and
without reference to rights on or to the crop acquired by others than the
owners of the property to which the crop is attached. . . . The existence
of a right on the growing crop is a mobilization by anticipation, a
gathering as it were in advance, rendering the crop movable quoad the
right acquired therein. Our jurisprudence recognizes the possible
mobilization of the growing crop." (Citizens' Bank vs. Wiltz, 31 La.
Ann., 244; Porche vs. Bodin, 28 La., Ann., 761; Sandel vs. Douglass,
27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana said in the case of
Porche vs. Bodin (28 La. An., 761) that "article 465 of the Revised
Code says that standing crops are considered as immovable and as

part of the land to which they are attached, and article 466 declares
that the fruits of an immovable gathered or produced while it is under
seizure are considered as making part thereof, and incurred to the
benefit of the person making the seizure. But the evident meaning of
these articles, is where the crops belong to the owner of the plantation
they form part of the immovable, and where it is seized, the fruits
gathered or produced inure to the benefit of the seizing creditor.
A crop raised on leased premises in no sense forms part of the
immovable. It belongs to the lessee, and may be sold by him, whether
it be gathered or not, and it may be sold by his judgment creditors. If it
necessarily forms part of the leased premises the result would be that
it could not be sold under execution separate and apart from the land.
If a lessee obtain supplies to make his crop, the factor's lien would not
attach to the crop as a separate thing belonging to his debtor, but the
land belonging to the lessor would be affected with the recorded
privilege. The law cannot be construed so as to result in such absurd
consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874 was an
immovable, it would be destructive of the very objects of the act, it
would render the pledge of the crop objects of the act, it would render
the pledge of the crop impossible, for if the crop was an inseparable
part of the realty possession of the latter would be necessary to that of
the former; but such is not the case. True, by article 465 C. C. it is
provided that "standing crops and the fruits of trees not gathered and
trees before they are cut down are likewise immovable and are
considered as part of the land to which they are attached;" but the
immovability provided for is only one in abstracto and without reference
to rights on or to the crop acquired by other than the owners of the
property to which the crop was attached. The immovability of a growing
crop is in the order of things temporary, for the crop passes from the
state of a growing to that of a gathered one, from an immovable to a
movable. The existence of a right on the growing crop is a mobilization
by anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired thereon. The provision of our Code

is identical with the Napoleon Code 520, and we may therefore obtain
light by an examination of the jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de
Espaa but by the Supreme Court of Louisiana, is followed in
practically every state of the Union.
From an examination of the reports and codes of the State of California
and other states we find that the settle doctrine followed in said states
in connection with the attachment of property and execution of
judgment is, that growing crops raised by yearly labor and cultivation
are considered personal property. (6 Corpuz Juris, p. 197; 17 Corpus
Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs. Green, 57 Cal.,
254; Norris vs. Watson, 55 Am. Dec., 161; Whipple vs. Foot, 3 Am.
Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs. Lampley, 31
Ala., 526; Crine vs. Tifts and Co., 65 Ga., 644; Gillitt vs. Truax, 27
Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on Execution,
vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on Sales, sec.
200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which
though not yet actually in existence, is reasonably certain to come into
existence as the natural increment or usual incident of something
already in existence, and then belonging to the vendor, and then title
will vest in the buyer the moment the thing comes into existence.
(Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have
a potential existence. A man may sell property of which he is potentially
and not actually possessed. He may make a valid sale of the wine that
a vineyard is expected to produce; or the gain a field may grow in a
given time; or the milk a cow may yield during the coming year; or the
wool that shall thereafter grow upon sheep; or what may be taken at
the next cast of a fisherman's net; or fruits to grow; or young animals
not yet in existence; or the good will of a trade and the like. The thing
sold, however, must be specific and identified. They must be also
owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am.
Rep., 165].)

It is contended on the part of the appellee that paragraph 2 of article

334 of the Civil Code has been modified by section 450 of the Code of
Civil Procedure as well as by Act No. 1508, the Chattel Mortgage Law.
Said section 450 enumerates the property of a judgment debtor which
may be subjected to execution. The pertinent portion of said section
reads as follows: "All goods, chattels, moneys, and other property, both
real and personal, * * * shall be liable to execution. Said section 450
and most of the other sections of the Code of Civil Procedure relating
to the execution of judgment were taken from the Code of Civil
Procedure of California. The Supreme Court of California, under
section 688 of the Code of Civil Procedure of that state (Pomeroy, p.
424) has held, without variation, that growing crops were personal
property and subject to execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing
crops are personal property. Section 2 of said Act provides: "All
personal property shall be subject to mortgage, agreeably to the
provisions of this Act, and a mortgage executed in pursuance thereof
shall be termed a chattel mortgage." Section 7 in part provides: "If
growing crops be mortgaged the mortgage may contain an agreement
stipulating that the mortgagor binds himself properly to tend, care for
and protect the crop while growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted
on the assumption that "growing crops" are personal property. This
consideration tends to support the conclusion hereinbefore stated, that
paragraph 2 of article 334 of the Civil Code has been modified by
section 450 of Act No. 190 and by Act No. 1508 in the sense that
"ungathered products" as mentioned in said article of the Civil Code
have the nature of personal property. In other words, the phrase
"personal property" should be understood to include "ungathered
products."
At common law, and generally in the United States, all annual crops
which are raised by yearly manurance and labor, and essentially owe
their annual existence to cultivation by man, . may be levied on as
personal property." (23 C. J., p. 329.) On this question Freeman, in his
treatise on the Law of Executions, says: "Crops, whether growing or
standing in the field ready to be harvested, are, when produced by

annual cultivation, no part of the realty. They are, therefore, liable to

voluntary transfer as chattels. It is equally well settled that they may be
seized and sold under execution. (Freeman on Executions, vol. p.
438.)
We may, therefore, conclude that paragraph 2 of article 334 of the Civil
Code has been modified by section 450 of the Code of Civil Procedure
and by Act No. 1508, in the sense that, for the purpose of attachment
and execution, and for the purposes of the Chattel Mortgage Law,
"ungathered products" have the nature of personal property. The lower
court, therefore, committed no error in holding that the sugar cane in
question was personal property and, as such, was not subject to
redemption.
All the other assignments of error made by the appellant, as above
stated, relate to questions of fact only. Before entering upon a
discussion of said assignments of error, we deem it opportune to take
special notice of the failure of the plaintiff to appear at the trial during
the presentation of evidence by the defendant. His absence from the
trial and his failure to cross-examine the defendant have lent
considerable weight to the evidence then presented for the defense.
Coming not to the ownership of parcels 1 and 2 described in the first
cause of action of the complaint, the plaintiff made a futile attempt to
show that said two parcels belonged to Agustin Cuyugan and were the
identical parcel 2 which was excluded from the attachment and sale of
real property of Sibal to Valdez on June 25, 1924, as stated above. A
comparison of the description of parcel 2 in the certificate of sale by
the sheriff (Exhibit A) and the description of parcels 1 and 2 of the
complaint will readily show that they are not the same.
The description of the parcels in the complaint is as follows:
1. La caa dulce sembrada por los inquilinos del ejecutado Leon Sibal
1. en una parcela de terreno de la pertenencia del citado ejecutado,
situada en Libutad, Culubasa, Bamban, Tarlac, de unas dos hectareas
poco mas o menos de superficie.

2. La caa dulce sembrada por el inquilino del ejecutado Leon Sibal

1., Ilamado Alejandro Policarpio, en una parcela de terreno de la
pertenencia del ejecutado, situada en Dalayap, Culubasa, Bamban,
Tarlac de unas dos hectareas de superficie poco mas o menos." The
description of parcel 2 given in the certificate of sale (Exhibit A) is as
follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de
177,090 metros cuadrados de superficie, linda al N. con Canuto Sibal,
Esteban Lazatin and Alejandro Dayrit; al E. con Francisco Dizon,
Felipe Mau and others; al S. con Alejandro Dayrit, Isidro Santos and
Melecio Mau; y al O. con Alejandro Dayrit and Paulino Vergara. Tax
No. 2854, vador amillarado P4,200 pesos.
On the other hand the evidence for the defendant purported to show
that parcels 1 and 2 of the complaint were included among the parcels
bought by Valdez from Macondray on June 25, 1924, and
corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and
were also included among the parcels bought by Valdez at the auction
of the real property of Leon Sibal on June 25, 1924, and corresponded
to parcel 3 in the certificate of sale made by the sheriff (Exhibit A). The
description of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:
Parcels No. 4. Terreno palayero, ubicado en el barrio de
Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de
superficie, lindante al Norte con Road of the barrio of Culubasa that
goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Mao y
Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado
asciende a la suma de P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and 2
of the complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A).
But, inasmuch as the plaintiff did not care to appear at the trial when
the defendant offered his evidence, we are inclined to give more
weight to the evidence adduced by him that to the evidence adduced
by the plaintiff, with respect to the ownership of parcels 1 and 2 of the
compliant. We, therefore, conclude that parcels 1 and 2 of the
complaint belong to the defendant, having acquired the same from

Macondray & Co. on June 25, 1924, and from the plaintiff Leon Sibal
on the same date.

execution in favor of Valdez (Exhibit A). June 25, 1924, said real
property was sold and purchased by Valdez (Exhibit A).

It appears, however, that the plaintiff planted the palay in said parcels
and harvested therefrom 190 cavans. There being no evidence of bad
faith on his part, he is therefore entitled to one-half of the crop, or 95
cavans. He should therefore be condemned to pay to the defendant for
95 cavans only, at P3.40 a cavan, or the sum of P323, and not for the
total of 190 cavans as held by the lower court.

June 25, 1924, Macondray & Co. sold all of the land which they had
purchased at public auction on the 30th day of July, 1923, to Valdez.

As to the ownership of parcel 7 of the complaint, the evidence shows

that said parcel corresponds to parcel 1 of the deed of sale of
Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in the
certificate of sale to Valdez of real property belonging to Sibal,
executed by the sheriff as above stated (Exhibit A). Valdez is therefore
the absolute owner of said parcel, having acquired the interest of both
Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in
paragraph 3 of the second cause of action, it appears from the
testimony of the plaintiff himself that said parcel corresponds to parcel
8 of the deed of sale of Macondray to Valdez (Exhibit B and 2) and to
parcel 10 in the deed of sale executed by the sheriff in favor of Valdez
(Exhibit A). Valdez is therefore the absolute owner of said parcel,
having acquired the interest of both Macondray and Sibal therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of
land were attached under said execution. Said parcels of land were
sold to Macondray & Co. on the 30th day of July, 1923. Rice paid
P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray &
Co. P2,000 on the redemption of said parcels of land. (See Exhibits B
and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of
Sibal was attached, including the sugar cane in question. (Exhibit A)
The said personal property so attached, sold at public auction May 9
and 10, 1924. April 29, 1924, the real property was attached under the

As to the loss of the defendant in sugar cane by reason of the

injunction, the evidence shows that the sugar cane in question covered
an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c); that said
area would have yielded an average crop of 1039 picos and 60 cates;
that one-half of the quantity, or 519 picos and 80 cates would have
corresponded to the defendant, as owner; that during the season the
sugar was selling at P13 a pico (Exhibit 5 and 5-A). Therefore, the
defendant, as owner, would have netted P 6,757.40 from the sugar
cane in question. The evidence also shows that the defendant could
have taken from the sugar cane 1,017,000 sugar-cane shoots (puntas
de cana) and not 1,170,000 as computed by the lower court. During
the season the shoots were selling at P1.20 a thousand (Exhibits 6
and 7). The defendant therefore would have netted P1,220.40 from
sugar-cane shoots and not P1,435.68 as allowed by the lower court.
As to the palay harvested by the plaintiff in parcels 1 and 2 of the
complaint, amounting to 190 cavans, one-half of said quantity should
belong to the plaintiff, as stated above, and the other half to the
defendant. The court erred in awarding the whole crop to the
defendant. The plaintiff should therefore pay the defendant for 95
cavans only, at P3.40 a cavan, or P323 instead of P646 as allowed by
the lower court.
The evidence also shows that the defendant was prevented by the
acts of the plaintiff from cultivating about 10 hectares of the land
involved in the litigation. He expected to have raised about 600 cavans
of palay, 300 cavans of which would have corresponded to him as
owner. The lower court has wisely reduced his share to 150 cavans
only. At P4 a cavan, the palay would have netted him P600.
In view of the foregoing, the judgment appealed from is hereby
modified. The plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal are hereby ordered to pay to the

defendant jointly and severally the sum of P8,900.80, instead of

P9,439.08 allowed by the lower court, as follows:
for the sugar cane;
for the sugar cane shoots;
for the palay harvested by plaintiff in parcels 1 and 2;
for the palay which defendant could have raised.

P6,757.40
1,220.40
323.00
600.00

8,900.80
============
In all other respects, the judgment appealed from is hereby affirmed,
with costs. So ordered.

!!
INVOLUNTARY INSOLVENCY OF PAUL STROCHECKER, v.
RAMIREZ [G.R. No. 18700. September 26, 1922. ]
!!
Lim & Lim for Appellant.
!
Ross & Lawrence and Antonio T. Carrasco, jr., for the Fidelity &
surety Co.
!
SYLLABUS
!
1. CHATTEL MORTGAGE; INTEREST IN A BUSINESS. An interest

in a business may be the subject of mortgage, for it is a personal

property, being capable of appropriation, and not included among the
real properties enumerated in article 335 of the Civil Code.

!2.

ID., ID., DESCRIPTION; SUFFICIENCY OF. Where the

description of the chattel mortgaged is such as to enable the parties to
the mortgage or any other person to identify the same after a
reasonable investigation or inquiry, the description is sufficient. Thus if

the drug business known as Antigua Botica Ramirez (owned by a

certain person therein named and the mortgagor) located at Nos. 123
and 125, Calle Real, District of Intramuros, Manila, P.I., the description
meets the requirements of the law.

!3. ID.; PREFERENCE; PURCHASE PRICE; POSSESSION. The

vendor of a chattel, who is a creditor for the purchase price, has no

preference over a creditor holding a mortgage on that chattel where
the vendor is not in possession of the thing mortgaged.

!4. ID., ID.; RETROACTIVITY; PERSONAL SECURITY. A junior

mortgage can have no preference over a senior mortgage by the mere

fact that prior to said junior mortgage a personal security had been
stipulated between the junior mortgagee and the debtor, because the
second mortgage cannot be given effect as of the date the personal
security was stipulated.

!
DECISION
!
ROMUALDEZ, J. :
!!
The question at issue in this appeal is, which of the two mortgages

here in question must be given preference? Is it the one in favor of the

Fidelity & Surety Co., or that in favor of Ildefonso Ramirez. The first
was declared by the trial court to be entitled to preference.

!In the lower court there were three mortgages each of whom claimed
preference. They were the two above mentioned and Concepcion
Ayala. The latters claim was rejected by the trial court, and that ruling
she did not appeal.

!There is no question as to the priority in time of the mortgage in favor

of the Fidelity & Surety Co. which was executed on March 10, 1919,
and registered in due time in the registry of the property, that in favor of
the appellant being dated September 22, 1919, and registered also in
the registry.

!The appellant claims preference on these grounds: (a) That the first

mortgage above-mentioned is not valid because the property which is

the subject-matter thereof is not capable of being mortgaged, and the

description of said property is not sufficient; and (b) that the amount
due the appellant is a purchase price, citing article 1922 of the Civil
Code in support thereof, and that his mortgage is but a modification of
the security given by the debtor on February 15, 1919, that is, prior to
the mortgage executed in favor of the Fidelity & Surety Co.

!As the first ground, the thing that was mortgaged to this corporation is
described in the document as follows:jgc:chanrobles.com.ph
!". . . his half interest in the drug business known as Antigua Botica

Ramirez (owned by Srta. Dolores del Rosario and the mortgagor

herein referred to as the partnership), located at Calle Real Nos. 123
and 125, District of Intramuros, Manila Philippine Islands."cralaw
virtua1aw library

!With regard to the nature of the property thus mortgaged which is one-

half interest in the business above described, such interest is a

personal property capable of appropriation and not included in the
enumeration of real properties in articles 335 of the Civil Code, and
may be the subject of mortgage. All personal property may be
mortgage. (Sec. 7, Act No. 1508.)

!The description contained in the document is sufficient. The law (sec.

7, Act No. 1508) requires only a description of the following
nature:jgc:chanrobles.com.ph

!"The description of the mortgaged property shall be such as to enable

the parties to the mortgage, or any other person, after reasonable
inquiry and investigation, to identify the same."cralaw virtua1aw library

!Turning to the second error assigned, numbers 1, 2, and 3 of the

article 1922 of the Civil Code invoked by the appellant are not
applicable. Neither the debtor, nor the himself, is in possession of the
property mortgaged, which is, and since the registration of the
mortgage has been, legally in possession of the Fidelity Surety Co.
(Sec. 4, Act. No. 1508; Meyers v. Thein, 15 Phil., 303)

!In no way can the mortgage executed in the favor of the appellant on
September 22, 1919, be given effect as of February 15, 1919, the date

of the sale of the drug store in question. On the 15th of February of

that year, there was a stipulation about personal security, but not a
mortgage upon property, and much less upon the property in question.

!Moreover, the appellant cannot deny the preferential character of the

mortgage in favor of the Fidelity & Surety Co. because in his mortgage
was second mortgage, subordinate to the one made in favor of the
Fidelity Surety Co.

!The judgment appealed from is affirmed with costs against the

appellant. So ordered
!!
! LAUREL v. ABROGAR [G.R. No. 155076, February 27, 2006]
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision1 of the
Court of Appeals (CA) in CA-G.R. SP No. 68841 affirming the Order
issued by Judge Zeus C. Abrogar, Regional Trial Court (RTC), Makati
City, Branch 150, which denied the "Motion to Quash (With Motion to
Defer Arraignment)" in Criminal Case No. 99-2425 for theft.
Philippine Long Distance Telephone Company (PLDT) is the holder of
a legislative franchise to render local and international
telecommunication services under Republic Act No. 7082.2 Under said
law, PLDT is authorized to establish, operate, manage, lease, maintain
and purchase telecommunication systems, including transmitting,
receiving and switching stations, for both domestic and international
calls. For this purpose, it has installed an estimated 1.7 million
telephone lines nationwide. PLDT also offers other services as
authorized by Certificates of Public Convenience and Necessity
(CPCN) duly issued by the National Telecommunications Commission
(NTC), and operates and maintains an International Gateway Facility
(IGF). The PLDT network is thus principally composed of the Public
Switch Telephone Network (PSTN), telephone handsets and/or

telecommunications equipment used by its subscribers, the wires and

cables linking said telephone handsets and/or telecommunications
equipment, antenna, the IGF, and other telecommunications
equipment which provide interconnections.3 1avvphil.net
PLDT alleges that one of the alternative calling patterns that constitute
network fraud and violate its network integrity is that which is known as
International Simple Resale (ISR). ISR is a method of routing and
completing international long distance calls using International Private
Leased Lines (IPL), cables, antenna or air wave or frequency, which
connect directly to the local or domestic exchange facilities of the
terminating country (the country where the call is destined). The IPL is
linked to switching equipment which is connected to a PLDT telephone
line/number. In the process, the calls bypass the IGF found at the
terminating country, or in some instances, even those from the
originating country.4
One such alternative calling service is that offered by Baynet Co., Ltd.
(Baynet) which sells "Bay Super Orient Card" phone cards to people
who call their friends and relatives in the Philippines. With said card,
one is entitled to a 27-minute call to the Philippines for about 37.03
per minute. After dialing the ISR access number indicated in the phone
card, the ISR operator requests the subscriber to give the PIN number
also indicated in the phone card. Once the callers identity (as
purchaser of the phone card) is confirmed, the ISR operator will then
provide a Philippine local line to the requesting caller via the IPL.
According to PLDT, calls made through the IPL never pass the toll
center of IGF operators in the Philippines. Using the local line, the
Baynet card user is able to place a call to any point in the Philippines,
provided the local line is National Direct Dial (NDD) capable.5
PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL
to course its incoming international long distance calls from Japan. The
IPL is linked to switching equipment, which is then connected to PLDT
telephone lines/numbers and equipment, with Baynet as subscriber.
Through the use of the telephone lines and other auxiliary equipment,
Baynet is able to connect an international long distance call from
Japan to any part of the Philippines, and make it appear as a call
originating from Metro Manila. Consequently, the operator of an ISR is

able to evade payment of access, termination or bypass charges and

accounting rates, as well as compliance with the regulatory
requirements of the NTC. Thus, the ISR operator offers international
telecommunication services at a lower rate, to the damage and
prejudice of legitimate operators like PLDT.6
PLDT pointed out that Baynet utilized the following equipment for its
ISR activities: lines, cables, and antennas or equipment or device
capable of transmitting air waves or frequency, such as an IPL and
telephone lines and equipment; computers or any equipment or device
capable of accepting information applying the prescribed process of
the information and supplying the result of this process; modems or
any equipment or device that enables a data terminal equipment such
as computers to communicate with other data terminal equipment via a
telephone line; multiplexers or any equipment or device that enables
two or more signals from different sources to pass through a common
cable or transmission line; switching equipment, or equipment or
device capable of connecting telephone lines; and software, diskettes,
tapes or equipment or device used for recording and storing
information.7
PLDT also discovered that Baynet subscribed to a total of 123 PLDT
telephone lines/numbers.8 Based on the Traffic Study conducted on
the volume of calls passing through Baynets ISR network which
bypass the IGF toll center, PLDT incurred an estimated monthly loss of
P10,185,325.96. 9 Records at the Securities and Exchange
Commission (SEC) also revealed that Baynet was not authorized to
provide international or domestic long distance telephone service in
the country. The following are its officers: Yuji Hijioka, a Japanese
national (chairman of the board of directors); Gina C. Mukaida, a
Filipina (board member and president); Luis Marcos P. Laurel, a
Filipino (board member and corporate secretary); Ricky Chan Pe, a
Filipino (board member and treasurer); and Yasushi Ueshima, also a
Japanese national (board member).
Upon complaint of PLDT against Baynet for network fraud, and on the
strength of two search warrants10 issued by the RTC of Makati, Branch
147, National Bureau of Investigation (NBI) agents searched its office
at the 7th Floor, SJG Building, Kalayaan Avenue, Makati City on

November 8, 1999. Atsushi Matsuura, Nobuyoshi Miyake, Edourd D.

Lacson and Rolando J. Villegas were arrested by NBI agents while in
the act of manning the operations of Baynet. Seized in the premises
during the search were numerous equipment and devices used in its
ISR activities, such as multiplexers, modems, computer monitors,
CPUs, antenna, assorted computer peripheral cords and
microprocessors, cables/wires, assorted PLDT statement of accounts,
parabolic antennae and voltage regulators.
State Prosecutor Ofelia L. Calo conducted an inquest investigation and
issued a Resolution11 on January 28, 2000, finding probable cause for
theft under Article 308 of the Revised Penal Code and Presidential
Decree No. 40112 against the respondents therein, including Laurel.
On February 8, 2000, State Prosecutor Calo filed an Information with
the RTC of Makati City charging Matsuura, Miyake, Lacson and
Villegas with theft under Article 308 of the Revised Penal Code. After
conducting the requisite preliminary investigation, the State Prosecutor
filed an Amended Information impleading Laurel (a partner in the law
firm of Ingles, Laurel, Salinas, and, until November 19, 1999, a
member of the board of directors and corporate secretary of Baynet),
and the other members of the board of directors of said corporation,
namely, Yuji Hijioka, Yasushi Ueshima, Mukaida, Lacson and Villegas,
as accused for theft under Article 308 of the Revised Penal Code. The
inculpatory portion of the Amended Information reads:
On or about September 10-19, 1999, or prior thereto, in Makati City,
and within the jurisdiction of this Honorable Court, the accused,
conspiring and confederating together and all of them mutually helping
and aiding one another, with intent to gain and without the knowledge
and consent of the Philippine Long Distance Telephone (PLDT), did
then and there willfully, unlawfully and feloniously take, steal and use
the international long distance calls belonging to PLDT by conducting
International Simple Resale (ISR), which is a method of routing and
completing international long distance calls using lines, cables,
antennae, and/or air wave frequency which connect directly to the local
or domestic exchange facilities of the country where the call is
destined, effectively stealing this business from PLDT while using its

facilities in the estimated amount of P20,370,651.92 to the damage

and prejudice of PLDT, in the said amount.
CONTRARY TO LAW.13
Accused Laurel filed a "Motion to Quash (with Motion to Defer
Arraignment)" on the ground that the factual allegations in the
Amended Information do not constitute the felony of theft under Article
308 of the Revised Penal Code. He averred that the Revised Penal
Code, or any other special penal law for that matter, does not prohibit
ISR operations. He claimed that telephone calls with the use of PLDT
telephone lines, whether domestic or international, belong to the
persons making the call, not to PLDT. He argued that the caller merely
uses the facilities of PLDT, and what the latter owns are the
telecommunication infrastructures or facilities through which the call is
made. He also asserted that PLDT is compensated for the callers use
of its facilities by way of rental; for an outgoing overseas call, PLDT
charges the caller per minute, based on the duration of the call. Thus,
no personal property was stolen from PLDT. According to Laurel, the
P20,370,651.92 stated in the Information, if anything, represents the
rental for the use of PLDT facilities, and not the value of anything
owned by it. Finally, he averred that the allegations in the Amended
Information are already subsumed under the Information for violation of
Presidential Decree (P.D.) No. 401 filed and pending in the
Metropolitan Trial Court of Makati City, docketed as Criminal Case No.
276766.
The prosecution, through private complainant PLDT, opposed the
motion,14 contending that the movant unlawfully took personal property
belonging to it, as follows: 1) intangible telephone services that are
being offered by PLDT and other telecommunication companies, i.e.,
the connection and interconnection to their telephone lines/facilities; 2)
the use of those facilities over a period of time; and 3) the revenues
derived in connection with the rendition of such services and the use of
such facilities.15
The prosecution asserted that the use of PLDTs intangible telephone
services/facilities allows electronic voice signals to pass through the
same, and ultimately to the called partys number. It averred that such

service/facility is akin to electricity which, although an intangible

property, may, nevertheless, be appropriated and be the subject of
theft. Such service over a period of time for a consideration is the
business that PLDT provides to its customers, which enables the latter
to send various messages to installed recipients. The service rendered
by PLDT is akin to merchandise which has specific value, and
therefore, capable of appropriation by another, as in this case, through
the ISR operations conducted by the movant and his co-accused.
The prosecution further alleged that "international business calls and
revenues constitute personal property envisaged in Article 308 of the
Revised Penal Code." Moreover, the intangible telephone services/
facilities belong to PLDT and not to the movant and the other accused,
because they have no telephone services and facilities of their own
duly authorized by the NTC; thus, the taking by the movant and his coaccused of PLDT services was with intent to gain and without the
latters consent.
The prosecution pointed out that the accused, as well as the movant,
were paid in exchange for their illegal appropriation and use of PLDTs
telephone services and facilities; on the other hand, the accused did
not pay a single centavo for their illegal ISR operations. Thus, the acts
of the accused were akin to the use of a "jumper" by a consumer to
deflect the current from the house electric meter, thereby enabling one
to steal electricity. The prosecution emphasized that its position is
fortified by the Resolutions of the Department of Justice in PLDT v.
Tiongson, et al. (I.S. No. 97-0925) and in PAOCTF-PLDT v. Elton John
Tuason, et al. (I.S. No. 2000-370) which were issued on August 14,
2000 finding probable cause for theft against the respondents therein.
On September 14, 2001, the RTC issued an Order16 denying the
Motion to Quash the Amended Information. The court declared that,
although there is no law that expressly prohibits the use of ISR, the
facts alleged in the Amended Information "will show how the alleged
crime was committed by conducting ISR," to the damage and prejudice
of PLDT.
Laurel filed a Motion for Reconsideration17 of the Order, alleging that
international long distance calls are not personal property, and are not

capable of appropriation. He maintained that business or revenue is

not considered personal property, and that the prosecution failed to
adduce proof of its existence and the subsequent loss of personal
property belonging to another. Citing the ruling of the Court in United
States v. De Guzman,18 Laurel averred that the case is not one with
telephone calls which originate with a particular caller and terminates
with the called party. He insisted that telephone calls are considered
privileged communications under the Constitution and cannot be
considered as "the property of PLDT." He further argued that there is
no kinship between telephone calls and electricity or gas, as the latter
are forms of energy which are generated and consumable, and may be
considered as personal property because of such characteristic. On
the other hand, the movant argued, the telephone business is not a
form of energy but is an activity.
In its Order19 dated December 11, 2001, the RTC denied the movants
Motion for Reconsideration. This time, it ruled that what was stolen
from PLDT was its "business" because, as alleged in the Amended
Information, the international long distance calls made through the
facilities of PLDT formed part of its business. The RTC noted that the
movant was charged with stealing the business of PLDT. To support its
ruling, it cited Strochecker v. Ramirez,20 where the Court ruled that
interest in business is personal property capable of appropriation. It
further declared that, through their ISR operations, the movant and his
co-accused deprived PLDT of fees for international long distance calls,
and that the ISR used by the movant and his co-accused was no
different from the "jumper" used for stealing electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing the
Order of the RTC. He alleged that the respondent judge gravely
abused his discretion in denying his Motion to Quash the Amended
Information.21 As gleaned from the material averments of the amended
information, he was charged with stealing the international long
distance calls belonging to PLDT, not its business. Moreover, the RTC
failed to distinguish between the business of PLDT (providing services
for international long distance calls) and the revenues derived
therefrom. He opined that a "business" or its revenues cannot be
considered as personal property under Article 308 of the Revised
Penal Code, since a "business" is "(1) a commercial or mercantile

activity customarily engaged in as a means of livelihood and typically

involving some independence of judgment and power of decision; (2) a
commercial or industrial enterprise; and (3) refers to transactions,
dealings or intercourse of any nature." On the other hand, the term
"revenue" is defined as "the income that comes back from an
investment (as in real or personal property); the annual or periodical
rents, profits, interests, or issues of any species of real or personal
property."22
Laurel further posited that an electric companys business is the
production and distribution of electricity; a gas companys business is
the production and/or distribution of gas (as fuel); while a water
companys business is the production and distribution of potable water.
He argued that the "business" in all these cases is the commercial
activity, while the goods and merchandise are the products of such
activity. Thus, in prosecutions for theft of certain forms of energy, it is
the electricity or gas which is alleged to be stolen and not the
"business" of providing electricity or gas. However, since a telephone
company does not produce any energy, goods or merchandise and
merely renders a service or, in the words of PLDT, "the connection and
interconnection to their telephone lines/facilities," such service cannot
be the subject of theft as defined in Article 308 of the Revised Penal
Code.23
He further declared that to categorize "business" as personal property
under Article 308 of the Revised Penal Code would lead to absurd
consequences; in prosecutions for theft of gas, electricity or water, it
would then be permissible to allege in the Information that it is the gas
business, the electric business or the water business which has been
stolen, and no longer the merchandise produced by such enterprise.24
Laurel further cited the Resolution of the Secretary of Justice in Piltel v.
Mendoza,25 where it was ruled that the Revised Penal Code, legislated
as it was before present technological advances were even conceived,
is not adequate to address the novel means of "stealing" airwaves or
airtime. In said resolution, it was noted that the inadequacy prompted
the filing of Senate Bill 2379 (sic) entitled "The AntiTelecommunications Fraud of 1997" to deter cloning of cellular phones
and other forms of communications fraud. The said bill "aims to protect

in number (ESN) (sic) or Capcode, mobile identification number (MIN),

electronic-international mobile equipment identity (EMEI/IMEI), or
subscriber identity module" and "any attempt to duplicate the data on
another cellular phone without the consent of a public
telecommunications entity would be punishable by law."26 Thus, Laurel
concluded, "there is no crime if there is no law punishing the crime."
On August 30, 2002, the CA rendered judgment dismissing the
petition.27 The appellate court ruled that a petition for certiorari under
Rule 65 of the Rules of Court was not the proper remedy of the
petitioner. On the merits of the petition, it held that while business is
generally an activity
which is abstract and intangible in form, it is nevertheless considered
"property" under Article 308 of the Revised Penal Code. The CA
opined that PLDTs business of providing international calls is personal
property which may be the object of theft, and cited United States v.
Carlos28 to support such conclusion. The tribunal also cited
Strochecker v. Ramirez,29 where this Court ruled that one-half interest
in a days business is personal property under Section 2 of Act No.
3952, otherwise known as the Bulk Sales Law. The appellate court
held that the operations of the ISR are not subsumed in the charge for
violation of P.D. No. 401.
Laurel, now the petitioner, assails the decision of the CA, contending
that THE COURT OF APPEALS ERRED IN RULING THAT THE
PERSONAL PROPERTY ALLEGEDLY STOLEN PER THE
INFORMATION IS NOT THE "INTERNATIONAL LONG DISTANCE
CALLS" BUT THE "BUSINESS OF PLDT."
THE COURT OF APPEALS ERRED IN RULING THAT THE TERM
"BUSINESS" IS PERSONAL PROPERTY WITHIN THE MEANING OF
ART. 308 OF THE REVISED PENAL CODE.30
Petitioner avers that the petition for a writ of certiorari may be filed to
nullify an interlocutory order of the trial court which was issued with
grave abuse of discretion amounting to excess or lack of jurisdiction. In

support of his petition before the Court, he reiterates the arguments in

his pleadings filed before the CA. He further claims that while the right
to carry on a business or an interest or participation in business is
considered property under the New Civil Code, the term "business,"
however, is not. He asserts that the Philippine Legislature, which
approved the Revised Penal Code way back in January 1, 1932, could
not have contemplated to include international long distance calls and
"business" as personal property under Article 308 thereof.
In its comment on the petition, the Office of the Solicitor General
(OSG) maintains that the amended information clearly states all the
essential elements of the crime of theft. Petitioners interpretation as to
whether an "international long distance call" is personal property under
the law is inconsequential, as a reading of the amended information
readily reveals that specific acts and circumstances were alleged
charging Baynet, through its officers, including petitioner, of feloniously
taking, stealing and illegally using international long distance calls
belonging to respondent PLDT by conducting ISR operations, thus,
"routing and completing international long distance calls using lines,
cables, antenna and/or airwave frequency which connect directly to the
local or domestic exchange facilities of the country where the call is
destined." The OSG maintains that the international long distance calls
alleged in the amended information should be construed to mean
"business" of PLDT, which, while abstract and intangible in form, is
personal property susceptible of appropriation.31 The OSG avers that
what was stolen by petitioner and his co-accused is the business of
PLDT providing international long distance calls which, though
intangible, is personal property of the PLDT.32
For its part, respondent PLDT asserts that personal property under
Article 308 of the Revised Penal Code comprehends intangible
property such as electricity and gas which are valuable articles for
merchandise, brought and sold like other personal property, and are
capable of appropriation. It insists that the business of international
calls and revenues constitute personal property because the same are
valuable articles of merchandise. The respondent reiterates that
international calls involve (a) the intangible telephone services that are
being offered by it, that is, the connection and interconnection to the
telephone network, lines or facilities; (b) the use of its telephone

network, lines or facilities over a period of time; and (c) the income
derived in connection therewith.33
PLDT further posits that business revenues or the income derived in
connection with the rendition of such services and the use of its
telephone network, lines or facilities are personal properties under
Article 308 of the Revised Penal Code; so is the use of said telephone
services/telephone network, lines or facilities which allow electronic
voice signals to pass through the same and ultimately to the called
partys number. It is akin to electricity which, though intangible
property, may nevertheless be appropriated and can be the object of
theft. The use of respondent PLDTs telephone network, lines, or
facilities over a period of time for consideration is the business that it
provides to its customers, which enables the latter to send various
messages to intended recipients. Such use over a period of time is
akin to merchandise which has value and, therefore, can be
appropriated by another. According to respondent PLDT, this is what
actually happened when petitioner Laurel and the other accused below
conducted illegal ISR operations.34
The petition is meritorious.
The issues for resolution are as follows: (a) whether or not the petition
for certiorari is the proper remedy of the petitioner in the Court of
Appeals; (b) whether or not international telephone calls using Bay
Super Orient Cards through the telecommunication services provided
by PLDT for such calls, or, in short, PLDTs business of providing said
telecommunication services, are proper subjects of theft under Article
308 of the Revised Penal Code; and (c) whether or not the trial court
committed grave abuse of discretion amounting to excess or lack of
jurisdiction in denying the motion of the petitioner to quash the
amended information.
On the issue of whether or not the petition for certiorari instituted by the
petitioner in the CA is proper, the general rule is that a petition for
certiorari under Rule 65 of the Rules of Court, as amended, to nullify
an order denying a motion to quash the Information is inappropriate
because the aggrieved party has a remedy of appeal in the ordinary
course of law. Appeal and certiorari are mutually exclusive of each

other. The remedy of the aggrieved party is to continue with the case in
due course and, when an unfavorable judgment is rendered, assail the
order and the decision on appeal. However, if the trial court issues the
order denying the motion to quash the Amended Information with
grave abuse of discretion amounting to excess or lack of jurisdiction, or
if such order is patently erroneous, or null and void for being contrary
to the Constitution, and the remedy of appeal would not afford
adequate and expeditious relief, the accused may resort to the
extraordinary remedy of certiorari.35 A special civil action for certiorari
is also available where there are special circumstances clearly
demonstrating the inadequacy of an appeal. As this Court held in
Bristol Myers Squibb (Phils.), Inc. v. Viloria:36

An information or complaint must state explicitly and directly every act

or omission constituting an offense38 and must allege facts establishing
conduct that a penal statute makes criminal;39 and describes the
property which is the subject of theft to advise the accused with
reasonable certainty of the accusation he is called upon to meet at the
trial and to enable him to rely on the judgment thereunder of a
subsequent prosecution for the same offense.40 It must show, on its
face, that if the alleged facts are true, an offense has been committed.
The rule is rooted on the constitutional right of the accused to be
informed of the nature of the crime or cause of the accusation against
him. He cannot be convicted of an offense even if proven unless it is
alleged or necessarily included in the Information filed against him.

Nonetheless, the settled rule is that a writ of certiorari may be granted

in cases where, despite availability of appeal after trial, there is at least
a prima facie showing on the face of the petition and its annexes that:
(a) the trial court issued the order with grave abuse of discretion
amounting to lack of or in excess of jurisdiction; (b) appeal would not
prove to be a speedy and adequate remedy; (c) where the order is a
patent nullity; (d) the decision in the present case will arrest future
litigations; and (e) for certain considerations such as public welfare and
public policy.37

As a general prerequisite, a motion to quash on the ground that the

Information does not constitute the offense charged, or any offense for
that matter, should be resolved on the basis of said allegations whose
truth and veracity are hypothetically committed;41 and on additional
facts admitted or not denied by the prosecution.42 If the facts alleged in
the Information do not constitute an offense, the complaint or
information should be quashed by the court.43

In his petition for certiorari in the CA, petitioner averred that the trial
court committed grave abuse of its discretion amounting to excess or
lack of jurisdiction when it denied his motion to quash the Amended
Information despite his claim that the material allegations in the
Amended Information do not charge theft under Article 308 of the
Revised Penal Code, or any offense for that matter. By so doing, the
trial court deprived him of his constitutional right to be informed of the
nature of the charge against him. He further averred that the order of
the trial court is contrary to the constitution and is, thus, null and void.
He insists that he should not be compelled to undergo the rigors and
tribulations of a protracted trial and incur expenses to defend himself
against a non-existent charge.
Petitioner is correct.

We have reviewed the Amended Information and find that, as

mentioned by the petitioner, it does not contain material allegations
charging the petitioner of theft of personal property under Article 308 of
the Revised Penal Code. It, thus, behooved the trial court to quash the
Amended Information. The Order of the trial court denying the motion
of the petitioner to quash the Amended Information is a patent nullity.
On the second issue, we find and so hold that the international
telephone calls placed by Bay Super Orient Card holders, the
telecommunication services provided by PLDT and its business of
providing said services are not personal properties under Article 308 of
the Revised Penal Code. The construction by the respondents of
Article 308 of the said Code to include, within its coverage, the
aforesaid international telephone calls, telecommunication services
and business is contrary to the letter and intent of the law.
The rule is that, penal laws are to be construed strictly. Such rule is
founded on the tenderness of the law for the rights of individuals and

on the plain principle that the power of punishment is vested in

Congress, not in the judicial department. It is Congress, not the Court,
which is to define a crime, and ordain its punishment.44 Due respect for
the prerogative of Congress in defining crimes/felonies constrains the
Court to refrain from a broad interpretation of penal laws where a
"narrow interpretation" is appropriate. The Court must take heed to
language, legislative history and purpose, in order to strictly determine
the wrath and breath of the conduct the law forbids.45 However, when
the congressional purpose is unclear, the court must apply the rule of
lenity, that is, ambiguity concerning the ambit of criminal statutes
should be resolved in favor of lenity.46
Penal statutes may not be enlarged by implication or intent beyond the
fair meaning of the language used; and may not be held to include
offenses other than those which are clearly described, notwithstanding
that the Court may think that Congress should have made them more
comprehensive.47 Words and phrases in a statute are to be construed
according to their common meaning and accepted usage.
As Chief Justice John Marshall declared, "it would be dangerous,
indeed, to carry the principle that a case which is within the reason or
mischief of a statute is within its provision, so far as to punish a crime
not enumerated in the statute because it is of equal atrocity, or of
kindred character with those which are enumerated.48 When
interpreting a criminal statute that does not explicitly reach the conduct
in question, the Court should not base an expansive reading on
inferences from subjective and variable understanding.49
Article 308 of the Revised Penal Code defines theft as follows:
Art. 308. Who are liable for theft. Theft is committed by any person
who, with intent to gain but without violence, against or intimidation of
persons nor force upon things, shall take personal property of another
without the latters consent.
The provision was taken from Article 530 of the Spanish Penal Code
which reads:

1. Los que con nimo de lucrarse, y sin violencia o intimidacin en las

personas ni fuerza en las cosas, toman las cosas muebles ajenas sin
la voluntad de su dueo.50
For one to be guilty of theft, the accused must have an intent to steal
(animus furandi) personal property, meaning the intent to deprive
another of his ownership/lawful possession of personal property which
intent is apart from and concurrently with the general criminal intent
which is an essential element of a felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following
elements: (a) the taking of personal property; (b) the said property
belongs to another; (c) the taking be done with intent to gain; and (d)
the taking be accomplished without the use of violence or intimidation
of person/s or force upon things.51
One is apt to conclude that "personal property" standing alone, covers
both tangible and intangible properties and are subject of theft under
the Revised Penal Code. But the words "Personal property" under the
Revised Penal Code must be considered in tandem with the word
"take" in the law. The statutory definition of "taking" and movable
property indicates that, clearly, not all personal properties may be the
proper subjects of theft. The general rule is that, only movable
properties which have physical or material existence and susceptible of
occupation by another are proper objects of theft.52 As explained by
Cuelo Callon: "Cosa juridicamente es toda sustancia corporal,
material, susceptible de ser aprehendida que tenga un valor
cualquiera."53
According to Cuello Callon, in the context of the Penal Code, only
those movable properties which can be taken and carried from the
place they are found are proper subjects of theft. Intangible properties
such as rights and ideas are not subject of theft because the same
cannot be "taken" from the place it is found and is occupied or
appropriated.
Solamente las cosas muebles y corporales pueden ser objeto de
hurto. La sustraccin de cosas inmuebles y la cosas incorporales (v.
gr., los derechos, las ideas) no puede integrar este delito, pues no es

posible asirlas, tomarlas, para conseguir su apropiacin. El Codigo

emplea la expresin "cosas mueble" en el sentido de cosa que es
susceptible de ser llevada del lugar donde se encuentra, como dinero,
joyas, ropas, etctera, asi que su concepto no coincide por completo
con el formulado por el Codigo civil (arts. 335 y 336).54
Thus, movable properties under Article 308 of the Revised Penal Code
should be distinguished from the rights or interests to which they
relate. A naked right existing merely in contemplation of law, although it
may be very valuable to the person who is entitled to exercise it, is not
the subject of theft or larceny.55 Such rights or interests are intangible
and cannot be "taken" by another. Thus, right to produce oil, good will
or an interest in business, or the right to engage in business, credit or
franchise are properties. So is the credit line represented by a credit
card. However, they are not proper subjects of theft or larceny because
they are without form or substance, the mere "breath" of the Congress.
On the other hand, goods, wares and merchandise of businessmen
and credit cards issued to them are movable properties with physical
and material existence and may be taken by another; hence, proper
subjects of theft.
There is "taking" of personal property, and theft is consummated when
the offender unlawfully acquires possession of personal property even
if for a short time; or if such property is under the dominion and control
of the thief. The taker, at some particular amount, must have obtained
complete and absolute possession and control of the property adverse
to the rights of the owner or the lawful possessor thereof.56 It is not
necessary that the property be actually carried away out of the physical
possession of the lawful possessor or that he should have made his
escape with it.57 Neither asportation nor actual manual possession of
property is required. Constructive possession of the thief of the
property is enough.58
The essence of the element is the taking of a thing out of the
possession of the owner without his privity and consent and without
animus revertendi.59
Taking may be by the offenders own hands, by his use of innocent
persons without any felonious intent, as well as any mechanical

device, such as an access device or card, or any agency, animate or

inanimate, with intent to gain. Intent to gain includes the unlawful
taking of personal property for the purpose of deriving utility,
satisfaction, enjoyment and pleasure.60
We agree with the contention of the respondents that intangible
properties such as electrical energy and gas are proper subjects of
theft. The reason for this is that, as explained by this Court in United
States v. Carlos61 and United States v. Tambunting,62 based on
decisions of the Supreme Court of Spain and of the courts in England
and the United States of America, gas or electricity are capable of
appropriation by another other than the owner. Gas and electrical
energy may be taken, carried away and appropriated. In People v.
Menagas,63 the Illinois State Supreme Court declared that electricity,
like gas, may be seen and felt. Electricity, the same as gas, is a
valuable article of merchandise, bought and sold like other personal
property and is capable of appropriation by another. It is a valuable
article of merchandise, bought and sold like other personal property,
susceptible of being severed from a mass or larger quantity and of
being transported from place to place. Electrical energy may, likewise,
be taken and carried away. It is a valuable commodity, bought and sold
like other personal property. It may be transported from place to place.
There is nothing in the nature of gas used for illuminating purposes
which renders it incapable of being feloniously taken and carried away.
In People ex rel Brush Electric Illuminating Co. v. Wemple,64 the Court
of Appeals of New York held that electric energy is manufactured and
sold in determinate quantities at a fixed price, precisely as are coal,
kerosene oil, and gas. It may be conveyed to the premises of the
consumer, stored in cells of different capacity known as an
accumulator; or it may be sent through a wire, just as gas or oil may be
transported either in a close tank or forced through a pipe. Having
reached the premises of the consumer, it may be used in any way he
may desire, being, like illuminating gas, capable of being transformed
either into heat, light, or power, at the option of the purchaser. In
Woods v. People,65 the Supreme Court of Illinois declared that there is
nothing in the nature of gas used for illuminating purposes which
renders it incapable of being feloniously taken and carried away. It is a
valuable article of merchandise, bought and sold like other personal

property, susceptible of being severed from a mass or larger quantity

and of being transported from place to place.
Gas and electrical energy should not be equated with business or
services provided by business entrepreneurs to the public. Business
does not have an exact definition. Business is referred as that which
occupies the time, attention and labor of men for the purpose of
livelihood or profit. It embraces everything that which a person can be
employed.66 Business may also mean employment, occupation or
profession. Business is also defined as a commercial activity for gain
benefit or advantage.67 Business, like services in business, although
are properties, are not proper subjects of theft under the Revised
Penal Code because the same cannot be "taken" or "occupied." If it
were otherwise, as claimed by the respondents, there would be no
juridical difference between the taking of the business of a person or
the services provided by him for gain, vis--vis, the taking of goods,
wares or merchandise, or equipment comprising his business.68 If it
was its intention to include "business" as personal property under
Article 308 of the Revised Penal Code, the Philippine Legislature
should have spoken in language that is clear and definite: that
business is personal property under Article 308 of the Revised Penal
Code.69
We agree with the contention of the petitioner that, as gleaned from the
material averments of the Amended Information, he is charged of
"stealing the international long distance calls belonging to PLDT" and
the use thereof, through the ISR. Contrary to the claims of the OSG
and respondent PLDT, the petitioner is not charged of stealing
P20,370,651.95 from said respondent. Said amount of P20,370,651.95
alleged in the Amended Information is the aggregate amount of
access, transmission or termination charges which the PLDT expected
from the international long distance calls of the callers with the use of
Baynet Super Orient Cards sold by Baynet Co. Ltd.
In defining theft, under Article 308 of the Revised Penal Code, as the
taking of personal property without the consent of the owner thereof,
the Philippine legislature could not have contemplated the human
voice which is converted into electronic impulses or electrical current
which are transmitted to the party called through the PSTN of

respondent PLDT and the ISR of Baynet Card Ltd. within its coverage.
When the Revised Penal Code was approved, on December 8, 1930,
international telephone calls and the transmission and routing of
electronic voice signals or impulses emanating from said calls, through
the PSTN, IPL and ISR, were still non-existent. Case law is that, where
a legislative history fails to evidence congressional awareness of the
scope of the statute claimed by the respondents, a narrow
interpretation of the law is more consistent with the usual approach to
the construction of the statute. Penal responsibility cannot be extended
beyond the fair scope of the statutory mandate.70
Respondent PLDT does not acquire possession, much less, ownership
of the voices of the telephone callers or of the electronic voice signals
or current emanating from said calls. The human voice and the
electronic voice signals or current caused thereby are intangible and
not susceptible of possession, occupation or appropriation by the
respondent PLDT or even the petitioner, for that matter. PLDT merely
transmits the electronic voice signals through its facilities and
equipment. Baynet Card Ltd., through its operator, merely intercepts,
reroutes the calls and passes them to its toll center. Indeed, the parties
called receive the telephone calls from Japan.
In this modern age of technology, telecommunications systems have
become so tightly merged with computer systems that it is difficult to
know where one starts and the other finishes. The telephone set is
highly computerized and allows computers to communicate across
long distances.71 The instrumentality at issue in this case is not merely
a telephone but a telephone inexplicably linked to a computerized
communications system with the use of Baynet Cards sold by the
Baynet Card Ltd. The corporation uses computers, modems and
software, among others, for its ISR.72
The conduct complained of by respondent PLDT is reminiscent of
"phreaking" (a slang term for the action of making a telephone system
to do something that it normally should not allow by "making the phone
company bend over and grab its ankles"). A "phreaker" is one who
engages in the act of manipulating phones and illegally markets
telephone services.73 Unless the phone company replaces all its
hardware, phreaking would be impossible to stop. The phone

companies in North America were impelled to replace all their

hardware and adopted full digital switching system known as the
Common Channel Inter Office Signaling. Phreaking occurred only
during the 1960s and 1970s, decades after the Revised Penal Code
took effect.
The petitioner is not charged, under the Amended Information, for theft
of telecommunication or telephone services offered by PLDT. Even if
he is, the term "personal property" under Article 308 of the Revised
Penal Code cannot be interpreted beyond its seams so as to include
"telecommunication or telephone services" or computer services for
that matter. The word "service" has a variety of meanings dependent
upon the context, or the sense in which it is used; and, in some
instances, it may include a sale. For instance, the sale of food by
restaurants is usually referred to as "service," although an actual sale
is involved.74 It may also mean the duty or labor to be rendered by one
person to another; performance of labor for the benefit of another.75 In
the case of PLDT, it is to render local and international
telecommunications services and such other services as authorized by
the CPCA issued by the NTC. Even at common law, neither time nor
services may be taken and occupied or appropriated.76 A service is
generally not considered property and a theft of service would not,
therefore, constitute theft since there can be no caption or asportation.
77 Neither is the unauthorized use of the equipment and facilities of
PLDT by the petitioner theft under the aforequoted provision of the
Revised Penal Code.78
If it was the intent of the Philippine Legislature, in 1930, to include
services to be the subject of theft, it should have incorporated the
same in Article 308 of the Revised Penal Code. The Legislature did
not. In fact, the Revised Penal Code does not even contain a definition
of services.
If taking of telecommunication services or the business of a person, is
to be proscribed, it must be by special statute79 or an amendment of
the Revised Penal Code. Several states in the United States, such as
New York, New Jersey, California and Virginia, realized that their
criminal statutes did not contain any provisions penalizing the theft of
services and passed laws defining and penalizing theft of telephone

and computer services. The Pennsylvania Criminal Statute now

penalizes theft of services, thus:
(a) Acquisition of services. -(1) A person is guilty of theft if he intentionally obtains services for
himself or for another which he knows are available only for
compensation, by deception or threat, by altering or tampering with the
public utility meter or measuring device by which such services are
delivered or by causing or permitting such altering or tampering, by
making or maintaining any unauthorized connection, whether
physically, electrically or inductively, to a distribution or transmission
line, by attaching or maintaining the attachment of any unauthorized
device to any cable, wire or other component of an electric, telephone
or cable television system or to a television receiving set connected to
a cable television system, by making or maintaining any unauthorized
modification or alteration to any device installed by a cable television
system, or by false token or other trick or artifice to avoid payment for
the service.
In the State of Illinois in the United States of America, theft of labor or
services or use of property is penalized:
(a) A person commits theft when he obtains the temporary use of
property, labor or services of another which are available only for hire,
by means of threat or deception or knowing that such use is without
the consent of the person providing the property, labor or services.
In 1980, the drafters of the Model Penal Code in the United States of
America arrived at the conclusion that labor and services, including
professional services, have not been included within the traditional
scope of the term "property" in ordinary theft statutes. Hence, they
decided to incorporate in the Code Section 223.7, which defines and
penalizes theft of services, thus:
(1) A person is guilty of theft if he purposely obtains services which he
knows are available only for compensation, by deception or threat, or
by false token or other means to avoid payment for the service.
"Services" include labor, professional service, transportation, telephone

or other public service, accommodation in hotels, restaurants or

elsewhere, admission to exhibitions, use of vehicles or other movable
property. Where compensation for service is ordinarily paid
immediately upon the rendering of such service, as in the case of
hotels and restaurants, refusal to pay or absconding without payment
or offer to pay gives rise to a presumption that the service was
obtained by deception as to intention to pay; (2) A person commits
theft if, having control over the disposition of services of others, to
which he is not entitled, he knowingly diverts such services to his own
benefit or to the benefit of another not entitled thereto.
Interestingly, after the State Supreme Court of Virginia promulgated its
decision in Lund v. Commonwealth,80 declaring that neither time nor
services may be taken and carried away and are not proper subjects of
larceny, the General Assembly of Virginia enacted Code No. 18-2-98
which reads:
Computer time or services or data processing services or information
or data stored in connection therewith is hereby defined to be property
which may be the subject of larceny under 18.2-95 or 18.2-96, or
embezzlement under 18.2-111, or false pretenses under 18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of
Alabama of 1975 penalizes theft of services:
"A person commits the crime of theft of services if: (a) He intentionally
obtains services known by him to be available only for compensation
by deception, threat, false token or other means to avoid payment for
the services "
In the Philippines, Congress has not amended the Revised Penal
Code to include theft of services or theft of business as felonies.
Instead, it approved a law, Republic Act No. 8484, otherwise known as
the Access Devices Regulation Act of 1998, on February 11, 1998.
Under the law, an access device means any card, plate, code, account
number, electronic serial number, personal identification number and
other telecommunication services, equipment or instrumentalitiesidentifier or other means of account access that can be used to obtain
money, goods, services or any other thing of value or to initiate a

transfer of funds other than a transfer originated solely by paper

instrument. Among the prohibited acts enumerated in Section 9 of the
law are the acts of obtaining money or anything of value through the
use of an access device, with intent to defraud or intent to gain and
fleeing thereafter; and of effecting transactions with one or more
access devices issued to another person or persons to receive
payment or any other thing of value. Under Section 11 of the law,
conspiracy to commit access devices fraud is a crime. However, the
petitioner is not charged of violation of R.A. 8484.
Significantly, a prosecution under the law shall be without prejudice to
any liability for violation of any provisions of the Revised Penal Code
inclusive of theft under Rule 308 of the Revised Penal Code and estafa
under Article 315 of the Revised Penal Code. Thus, if an individual
steals a credit card and uses the same to obtain services, he is liable
of the following: theft of the credit card under Article 308 of the Revised
Penal Code; violation of Republic Act No. 8484; and estafa under
Article 315(2)(a) of the Revised Penal Code with the service provider
as the private complainant. The petitioner is not charged of estafa
before the RTC in the Amended Information.
Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000
provides:
Sec. 33. Penalties. The following Acts shall be penalized by fine and/
or imprisonment, as follows:
a) Hacking or cracking which refers to unauthorized access into or
interference in a computer system/server or information and
communication system; or any access in order to corrupt, alter, steal,
or destroy using a computer or other similar information and
communication devices, without the knowledge and consent of the
owner of the computer or information and communications system,
including the introduction of computer viruses and the like, resulting on
the corruption, destruction, alteration, theft or loss of electronic data
messages or electronic documents shall be punished by a minimum
fine of One hundred thousand pesos (P100,000.00) and a maximum
commensurate to the damage incurred and a mandatory imprisonment
of six (6) months to three (3) years.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The

assailed Orders of the Regional Trial Court and the Decision of the
Court of Appeals are REVERSED and SET ASIDE. The Regional Trial
Court is directed to issue an order granting the motion of the petitioner
to quash the Amended Information.
SO ORDERED.

!
MANECLANG v. IAC [G.R. No. L-66575 September 30, 1986]
Loreto Novisteros for petitioners.chanrobles virtual law library
Corleto R. Castro for respondents.
FERNAN, J.:
Petitioners Adriano Maneclang, et. al. filed before the then Court of
First Instance of Pangasinan, Branch XI a complaint for quieting of title
over a certain fishpond located within the four [41 parcels of land
belonging to them situated in Barrio Salomague, Bugallon,
Pangasinan, and the annulment of Resolutions Nos. 38 and 95 of the
Municipal Council of Bugallon Pangasinan. The trial court dismissed
the complaint in a decision dated August 15, 1975 upon a finding that
the body of water traversing the titled properties of petitioners is a
creek constituting a tributary of the Agno River; therefore public in
nature and not subject to private appropriation. The lower court
likewise held that Resolution No. 38, ordering an ocular inspection of
the Cayangan Creek situated between Barrios Salomague Sur and
Salomague Norte, and Resolution No. 95 authorizing public bidding for
the lease of all municipal ferries and fisheries, including the fishpond
under consideration, were passed by respondents herein as members
of the Municipal Council of Bugallon, Pangasinan in the exercise of
their legislative powers.chanroblesvirtualawlibrary chanrobles virtual
law library

Petitioners appealed said decision to the Intermediate Appellate Court,

which affirmed the same on April 29, 1983. Hence, this petition for
review on certiorari.chanroblesvirtualawlibrary chanrobles virtual law
library
Acting on the petition, the Court required the respondents to comment
thereon. However, before respondents could do so, petitioners
manifested that for lack of interest on the part of respondent Alfredo
Maza, the awardee in the public bidding of the fishpond, the parties
desire to amicably settle the case by submitting to the Court a
Compromise Agreement praying that judgment be rendered
recognizing the ownership of petitioners over the land the body of
water found within their titled properties, stating therein, among other
things, that "to pursue the case, the same will not amount to any
benefit of the parties, on the other hand it is to the advantage and
benefit of the municipality if the ownership of the land and the water
found therein belonging to petitioners be recognized in their favor as it
is now clear that after the National Irrigation Administration [NIA] had
built the dike around the land, no water gets in or out of the land.
1chanrobles virtual law library
The stipulations contained in the Compromise Agreement partake of
the nature of an adjudication of ownership in favor of herein petitioners
of the fishpond in dispute, which, as clearly found by the lower and
appellate courts, was originally a creek forming a tributary of the Agno
River. Considering that as held in the case of Mercado vs. Municipal
President of Macabebe, 59 Phil. 592 [1934], a creek, defined as a
recess or arm extending from a river and participating in the ebb and
flow of the sea, is a property belonging to the public domain which is
not susceptible to private appropriation and acquisitive prescription,
and as a public water, it cannot be registered under the Torrens
System in the name of any individual [Diego v. Court of Appeals, 102
Phil. 494; Mangaldan v. Manaoag, 38 Phil. 4551; and considering
further that neither the mere construction of irrigation dikes by the
National Irrigation Administration which prevented the water from
flowing in and out of the subject fishpond, nor its conversion into a
fishpond, alter or change the nature of the creek as a property of the
public domain, the Court finds the Compromise Agreement null and

void and of no legal effect, the same being contrary to law and public
policy.chanroblesvirtualawlibrary chanrobles virtual law library
The finding that the subject body of water is a creek belonging to the
public domain is a factual determination binding upon this Court. The
Municipality of Bugallon, acting thru its duly-constituted municipal
council is clothed with authority to pass, as it did the two resolutions
dealing with its municipal waters, and it cannot be said that petitioners
were deprived of their right to due process as mere publication of the
notice of the public bidding suffices as a constructive notice to the
whole world.chanroblesvirtualawlibrary chanrobles virtual law library
IN VIEW OF THE FOREGOING, the Court Resolved to set aside the
Compromise Agreement and declare the same null and void for being
contrary to law and public policy. The Court further resolved to
DISMISS the instant petition for lack of
merit.chanroblesvirtualawlibrarychanrobles virtual law library

Teofilo C. Villarico, petitioner, is the owner of a lot in La Huerta, Para

aque City, Metro Manila with an area of sixty-six (66) square meters
and covered by Transfer Certificate of Title (T.C.T.) No. 95453 issued
by the Registry of Deeds, same city.
Petitioner's lot is separated from the Ninoy Aquino Avenue (highway)
by a strip of land belonging to the government. As this highway was
elevated by four (4) meters and therefore higher than the adjoining
areas, the Department of Public Works and Highways (DPWH)
constructed stairways at several portions of this strip of public land to
enable the people to have access to the highway.
Sometime in 1991, Vivencio Sarmiento, his daughter Bessie Sarmiento
and her husband Beth Del Mundo, respondents herein, had a building
constructed on a portion of said government land. In November that
same year, a part thereof was occupied by Andok's Litson Corporation
and Marites' Carinderia, also impleaded as respondents.
In 1993, by means of a Deed of Exchange of Real Property, petitioner
acquired a 74.30 square meter portion of the same area owned by the
government. The property was registered in his name as T.C.T. No.
74430 in the Registry of Deeds of Paraaque City.

SO ORDERED.

!
SANDOVAL-GUTIERREZ, J.:

In 1995, petitioner filed with the RTC, Branch 259, Paraaque City, a
complaint for accion publiciana against respondents, docketed as Civil
Case No. 95-044. He alleged inter alia that respondents' structures on
the government land closed his "right of way" to the Ninoy Aquino
Avenue; and encroached on a portion of his lot covered by T.C.T. No.
74430.

Before us is a Petition for Review on Certiorari of the Decision1 of the

Court of Appeals dated December 7, 1998 in CA-G.R. CV No. 54883,
affirming in toto the Decision2 of the Regional Trial Court (RTC) of
Paraaque City, Branch 259, dated November 14, 1996, in Civil Case
No. 95-044.

Respondents, in their answer, specifically denied petitioner's

allegations, claiming that they have been issued licenses and permits
by Paraaque City to construct their buildings on the area; and that
petitioner has no right over the subject property as it belongs to the
government.

The facts of this case, as gleaned from the findings of the Court of
Appeals, are:

After trial, the RTC rendered its Decision, the dispositive portion of
which reads:

VILLARICO v. SARMIENTO [G.R. NO. 136438 : November 11, 2004]

DECISION

"WHEREFORE, premises considered, judgment is hereby rendered:

1. Declaring the defendants to have a better right of possession over

the subject land except the portion thereof covered by Transfer
Certificate of Title No. 74430 of the Register of Deeds of Paraaque;
2. Ordering the defendants to vacate the portion of the subject
premises described in Transfer Certificate of Title No. 74430 and gives
its possession to plaintiff; andcralawlibrary
3. Dismissing the claim for damages of the plaintiff against the
defendants, and likewise dismissing the claim for attorney's fees of the
latter against the former.
Without pronouncement as to costs.
SO ORDERED."3
The trial court found that petitioner has never been in possession of
any portion of the public land in question. On the contrary, the
defendants are the ones who have been in actual possession of the
area. According to the trial court, petitioner was not deprived of his
"right of way" as he could use the Kapitan Tinoy Street as passageway
to the highway.
On appeal by petitioner, the Court of Appeals issued its Decision
affirming the trial court's Decision in toto, thus:
"WHEREFORE, the judgment hereby appealed from is hereby
AFFIRMED in toto, with costs against the plaintiff-appellant.
SO ORDERED."4

THE HON. COURT OF APPEALS ERRED IN CONSIDERING THAT

THE ONLY ISSUE IN THIS CASE IS WHETHER OR NOT THE
PLAINTIFF-APPELLANT HAS ACQUIRED A RIGHT OF WAY OVER
THE LAND OF THE GOVERNMENT WHICH IS BETWEEN HIS
PROPERTY AND THE NINOY AQUINO AVENUE.
III
THE HON. COURT OF APPEALS ERRED IN CONCLUDING THAT
ACCION PUBLICIANA IS NOT THE PROPER REMEDY IN THE
CASE AT BAR.
IV
THE HON. COURT OF APPEALS ERRED IN CONCLUDING THAT
THE EXISTENCE OF THE PLAINTIFF-APPELLANT'S RIGHT OF
WAY DOES NOT CARRY POSSESSION OVER THE SAME.
V
THE HON. COURT OF APPEALS ERRED IN NOT RESOLVING THE
ISSUE OF WHO HAS THE BETTER RIGHT OF POSSESSION OVER
THE SUBJECT LAND BETWEEN THE PLAINTIFF-APPELLANT AND
THE DEFENDANT-APPELLEES."5
In their comment, respondents maintain that the Court of Appeals did
not err in ruling that petitioner's action for accion publiciana is not the
proper remedy in asserting his "right of way" on a lot owned by the
government.

"I

Here, petitioner claims that respondents, by constructing their buildings

on the lot in question, have deprived him of his "right of way" and his
right of possession over a considerable portion of the same lot, which
portion is covered by his T.C.T. No. 74430 he acquired by means of
exchange of real property.

THE FINDINGS OF FACT OF THE HON. COURT OF APPEALS

CONTAINED A CONCLUSION WITHOUT CITATION OF SPECIFIC
EVIDENCE ON WHICH THE SAME WAS BASED.

It is not disputed that the lot on which petitioner's alleged "right of way"
exists belongs to the state or property of public dominion. Property of
public dominion is defined by Article 420 of the Civil Code as follows:

In this petition, petitioner ascribes to the Court of Appeals the following

assignments of error:

II

"ART. 420. The following things are property of public dominion:

(1) Those intended for public use such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and other of similar character.
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth."
Public use is "use that is not confined to privileged individuals, but is
open to the indefinite public."6 Records show that the lot on which the
stairways were built is for the use of the people as passageway to the
highway. Consequently, it is a property of public dominion.
Property of public dominion is outside the commerce of man and
hence it: (1) cannot be alienated or leased or otherwise be the subject
matter of contracts; (2) cannot be acquired by prescription against the
State; (3) is not subject to attachment and execution; and (4) cannot
be burdened by any voluntary easement.7
Considering that the lot on which the stairways were constructed is a
property of public dominion, it can not be burdened by a voluntary
easement of right of way in favor of herein petitioner. In fact, its use by
the public is by mere tolerance of the government through the DPWH.
Petitioner cannot appropriate it for himself. Verily, he can not claim any
right of possession over it. This is clear from Article 530 of the Civil
Code which provides:
"ART. 530. Only things and rights which are susceptible of being
appropriated may be the object of possession."
Accordingly, both the trial court and the Court of Appeals erred in ruling
that respondents have better right of possession over the subject lot.
However, the trial court and the Court of Appeals found that
defendants' buildings were constructed on the portion of the same lot
now covered by T.C.T. No. 74430 in petitioner's name. Being its owner,
he is entitled to its possession.

WHEREFORE, the petition is DENIED. The assailed Decision of the

Court of Appeals dated December 7, 1998 in CA-G.R. CV No. 54883 is
AFFIRMED with MODIFICATION in the sense that neither petitioner
nor respondents have a right of possession over the disputed lot where
the stairways were built as it is a property of public dominion. Costs
against petitioner.
SO ORDERED.